UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
xANNUAL REPORT UNDER SECTION 13 OR 15(D)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the annual period ended December 31, 2017 | |
or | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________ | |
For the fiscal year ended:December 31, 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:File No.: 000-5462400-54624
US HIGHLAND, INC. | ||
(Exact name of registrant as specified in its charter) |
Oklahoma |
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(State or other jurisdiction of |
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(Address of principal executive offices) | ||||
(404) 419-2253 | ||||
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1170 Peachtree St., Suite 1200, Atlanta, Georgia 30309 | ||||
Former name, former address and former fiscal year, if changed since last report | ||||
Registrant's Telephone number, including area code:(918) 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¨Nox
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¨Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 orand Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to filefiles such reports), and (2) has been subject to such filing requirements for at least the partpast 90 days. YesYes. ¨NoNo. 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 232.406232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and postfiles such files)reports). YesYes. ¨NoNo. 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'sregistrant’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.¨x
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 | ¨ | Smaller reporting company | x |
Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. . x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212-b2 of the Exchange Act). YesYes. ¨NoNo. x
TheState 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, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $898,170 on June 30, 20142017, by reference to the price at which the common equity was $27,204,684. last sold.
As of July 9, 2015,March 15, 2018 there were 77,727,669371,049,115 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, 2014
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 6 | |||||
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Forward-Looking StatementsFORWARD 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 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. Unless stated otherwise, terms such as the “Company,” “US Highland,” “we,” “us,” “our,” and similar terms shall refer to US Highland, Inc., an Oklahoma corporation, and its subsidiaries.
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Corporate History
US Highland, Inc. ("US Highland" or the "Registrant" or the "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,Harcom Productions, 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,and 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 (the “Company”) was a recreational powersportspower sports 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 equipmentDuring 2017, the Company exited the recreational power sports OEM 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 2015 of its single cylinder engine platform and will be followed by the launch of its twin cylinder engines. leisure activity vehicles markets.
Management believesOn March 8, 2018, the Company entered the fast-casual restaurant space through its share-exchange acquisition of TruFood Provision Co., a healthy dining establishment that our cash balance will not be sufficientplans to meet our working capital requirements forexpand across the next twelve month period. We plan to raisesouth east. TruFood Provision Co. is a healthy dining pure play, and positions 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.
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 AvenueCompany in the Pine Industrial complex just southeast of the Tulsa International Airport.
US Highland's business development strategy includes:
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- 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 600 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'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 israpidly growing in most global market segments, with Europe showing flat sales, illustrating generally positive expected performance of the powersports industry for the 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. healthy eating space.
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 year'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" 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.
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 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" 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.
ITEMItem 1A. RISK FACTORS Risk Factors.
Not applicableAs 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.
ITEMItem 1B. UNRESOLVED STAFF COMMENTS Unresolved Staff Comments.
Not applicable. None.
ITEMItem 2. PROPERTY Property.
The registrant's principle executive and manufacturing offices are located at 1411 N. 105th East Avenue, Tulsa, Oklahoma 74116.Company currently has no ownership or leases of property. The registrant'sCompany’s business mailing address is 3500 Lennox Road, Suite 1500, Atlanta, Georgia 30309. The Company’s primary phone number is 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 fee that is currently $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. (404) 419-2253.
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. Legal Proceedings.
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.
On February 22, 2016, the Company entered into a Release of Claims and Settlement Agreement with John R. Fitzpatrick, III, Steven Pfaff, and certain of the Company’s officers and directors. Pursuant to the settlement agreement, the parties discharged each other from all claims actions, demands, costs, losses, damages, and expenses relating to Mr. Fitzpatrick’s and Mr. Pfaff’s previous employment with the Company in consideration for an aggregate settlement amount of $200,000 in two installments. The Company and the directors also agreed to execute and deliver a pocket judgement against them which shall not be filed unless the Company fails to make the scheduled payments under the settlement agreement.
On February 13, 2017, Baum Glass & Jayne PLLC (“Plaintiff”) obtained a default judgment against the Company in the amount of $27,083.74. Plaintiff has not attempted enforced collection. The amount was included in accounts payable as of December 31, 2017 and 2016.
ITEMItem 4. MINE SAFETY DISCLOSURES Mine Safety Disclosures.
Not applicable.
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Market Information
On March 17, 2008, our common stock was listed for the first time on the OTC Bulletin Board under the symbol "HRCM"“HRCM”. On March 31, 2010, due to our name change, our symbol was changed to "UHLN"“UHLN”.
The following table sets forthOver the rangecourse of the past 52 weeks, UHLN has traded at a low of $0.0003 and a 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 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 July 9, 2015,December 31, 2017, there were approximately 132 shareholdersrecord holders of the Registrant. our common stock.
Dividends
Holders of the Registrant'sCompany’s common stock are entitled to receive such dividends as may be declared by its board of directors. No dividends on the Registrant'sCompany’s common stock have ever been paid, and the RegistrantCompany does not anticipate that dividends will be paid on its common stock in the foreseeable future.
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
AllOn July 13, 2017, the issuancesCompany issued 29,788,980 shares of common stock to settle $8,800 in principal and $1,924 of interest on a debt conversion with Union Capital, LLC, a significant shareholder of the Company.
The Company issued the above-mentioned notes in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(a)(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were previously reported. no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) each purchaser of the securities was an “accredited investor,” as defined under the Securities Act.
Capitalization
Under our Articles of Incorporation, as amended, we are authorized to issue up to 1,000,000,000 shares of common stock, par value $0.01 per share, and up to 3,550,000 shares of “blank check” preferred stock, par value $0.01 per share. As of December 31, 2017, there were 345,450,049 shares of common stock issued and outstanding. As of December 31, 2017, 3,500,000 shares of “blank check” preferred stock were designated as Series A Preferred Stock and 10,000 shares were designated as Series B Preferred Stock, of which 3,381,520 and 5,000 were issued and outstanding, respectively.
ITEMItem 6. SELECTED FINANCIAL DATA Selected Financial Data.
Not applicable to a smaller reporting company.
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Certain statements contained in this Annual Report, including statements regarding the anticipated development and expansionResults 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. Operations
Overview The twelve-month period ended December 31, 2017 compared to the twelve-month period ended December 31, 2016
Revenues
The Company is a recreational powersports original equipment manufacturer ("OEM"), which develops motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. had no revenues.
Results of Operations
For the years ended December 31, 2014 and December 31, 2013
Revenues
During the year ended December 31, 2014, the Company had revenues of $10,930 (2013 - $nil) for sale of shop equipment to one customer.
Operating Expenses
Operating expenses for the year ended December 31, 2014 were $1,137,482, which was comprised primarily of $756,902 for general and administrative expenses and $371,170 for professional expenses as compareddecreased 96% due 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. The increase in general and administrative expenses of $111,716 resulted primarily from an increase in payroll from $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 ongoing business operations. External professional fees of $174,805 resulted primarily from the Company reducing the number of professionals utilized during the year ended December 31, 2014 as compareddecreased 64% due to the year ended December 31, 2013. Thedue to a decrease in consulting fees of $2,943,106 was a result of the granting warrants to consultants in fiscal 2013. ongoing business operations.
Net Loss Income (Loss)
Net loss forDuring 2016, the year ended December 31, 2014 was $17,908,057, comparedCompany recognized gains in connection with writing off accounts payable aged over five years. During 2016, the Company incurred losses to net lossthe extent of $32,107,140 forwriting off of various assets at book value. In addition, the year ended December 31, 2013. The lossCompany experienced a decrease in fiscal 2014 includes $1,666,381 in interest expense and $16,442,992 loss on change inthe fair value of its derivatives offset by a gain on settlementover the prior-year period from the conversion 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. promissory notes from the prior year. See Note 1 to the Company’s Financial Statements.
Liquidity and Capital Resources
As of December 31, 2014, we had cash of $14,035 and a working capital deficit of $47,612,935. The future ofInitially, because the Company is dependent upon its abilityborrowed funds on a convertible basis, the Company’s cash position was positive. Overall, however, the Company, experienced a decreased cash position due to obtain future financing, upon cash generated from ourthe decrease in ongoing business operations, and our ability to borrow cash when needed from related parties. We estimated that we will require $2,188,000 over the 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 inbecause all 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. We received proceeds of $917,300 from the issuance of notes payable and convertible debt during fiscal 2014, as compared to $887,000 in fiscal 2013. We made cash repayments of $37,300 for notes payable in fiscal 2014 as compared to $2,000 in fiscal 2013. Weexpenses were paid out $150,000of cash on hand. In addition, the Company experienced a decrease in non-cash resources in connection the conversion of promissory notes. See Notes 5 and 7 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 of December 31, 2014, we did not have any established lines of credit with any banks or any other arrangements, agreements, or commitments for financing our operations.
Going Concern
The Company has no revenues and has incurred a net loss of $17,908,057 for the year ended December 31, 2014.losses. In addition, at December 31, 2014,2017, there was an accumulated deficit of $103,112,026.$75,244,112. 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'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's ability to continue as a going concern. The Company's consolidated financial statements contain additional note disclosures describing the circumstances that lead to the auditor'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 arrangementsOff 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.
Not applicable As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item of Form 10-K.
6 |
| Table of Contents |
ITEMItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements and Supplemental Data.
US Highland, Inc.
Index to the Consolidated Financial StatementsTable of Contents
|
|
| F-2 |
| |
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|
|
| ||
Consolidated |
|
| F-3 |
| |
|
|
|
| ||
Consolidated Statements of |
|
| F-4 |
| |
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| |||
F-5 | |||||
F-6 | |||||
F-7 |
|
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of US Highland, Inc.
Tulsa, Oklahoma Atlanta, Georgia
We have audited the accompanying consolidated balance sheetsheets of US Highland, Inc. as of December 31, 20142017 and 2016 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows and changes in stockholders' deficit for the yearyears 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 audit. audits.
We conducted our auditaudits 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'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 audit providesaudits provide 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, 20142017 and 2016 and the results of its operations and its cash flows for the yearyears 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 consolidated 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'sManagement’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 Fruci & Associates II, PLLC
GBH CPAs, PC
www.gbhcpas.comFruci & Associates II, PLLC
Houston, Texas
July 9, 2015 Spokane, Washington
March 30, 2018
F-2 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMUS Highland, Inc.
To the Board of Directors andStockholders of US Highland, Inc.Tulsa, Oklahoma Consolidated Balance Sheets
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.
|
| December 31, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 3,066 |
|
| $ | 260 |
|
Deposit in acquisition |
|
| 75,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
| 78,066 |
|
|
| 260 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 78,066 |
|
| $ | 260 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 350,465 |
|
| $ | 283,879 |
|
Accrued liabilities ($0 and $177,852 related parties, respectively) |
|
| 704,987 |
|
|
| 539,844 |
|
Convertible debentures, net of discounts of $0 and $180,716, respectively |
|
| 768,753 |
|
|
| 527,150 |
|
Derivative liabilities |
|
| 409,948 |
|
|
| 402,881 |
|
Loans payable ($0 and $370,000 related parties, respectively) |
|
| 481,000 |
|
|
| 481,000 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
| 2,715,154 |
|
|
| 2,234,754 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Series A Preferred stock, 3,500,000 shares authorized, par value $0.01; 3,381,520 shares issued and outstanding |
|
| 33,815 |
|
|
| 33,815 |
|
|
|
|
|
|
|
|
|
|
Series B Preferred stock, 10,000 shares authorized, par value $0.01; 5,000 shares issued and outstanding |
|
| 50 |
|
|
| 50 |
|
|
|
|
|
|
|
|
|
|
Common stock, 1,000,000,000 shares authorized, $0.01 par value; 345,450,049 and 315,661,049 shares and outstanding at December 31, 2017 and 2016 respectively |
|
| 3,454,502 |
|
|
| 3,156,612 |
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost – 58,333 shares |
|
| (773,500 | ) |
|
| (773,500 | ) |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
| 69,892,158 |
|
|
| 69,892,158 |
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
| (75,244,112 | ) |
|
| (74,543,629 | ) |
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficit |
|
| (2,637,087 |
|
|
| (2,234,494 | ) |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit |
| $ | 78,066 |
|
| $ | 260 |
|
We conducted our audit in accordance with the standards(The accompanying notes are an integral part 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, thethese 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 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 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 substantial accumulated deficit, recurring operating losses and has a working capital deficiency of $30,348,513. These conditions raise substantial doubt the Company's ability to continue as a going concern. Management'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
May 5, 2014statements.)
F-3 |
| Table of Contents |
Consolidated Balance Sheets
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
For the Year Ended December 31, 2017 2016 Revenue Operating Expenses Depreciation General and administrative Professional fees Total Operating Expenses Operating Loss Other Income (Expense) Interest expense Change in fair value of derivatives Gain on settlement of debt Loss on Disposal of Assets Loss on Convertible Notes Other income Total Other Income (Expense) Net (Loss) Income Net Earnings (Loss) Per Common Share Basic weighted average common shares outstanding Diluted weighted average common shares outstanding $ - $ - - 2,252 1,681 39,014 78,715 220,796 80,396 262,062 (80,396 ) (262,062 ) (325,471 ) (817,841 ) (44,084 ) 16,932,425 - 624,966 (383 ) (211,681 ) (250,149 ) (2,766,193 ) - 2,311 (620,087 ) 13,763,987 $ (700,483 ) $ 13,501,925 -Basic $ - $ 0.11 -Diluted $ - $ 0.06 321,226,043 122,234,935 321,226,043 237,835,850
(The accompanying notes are an integral part of these consolidated financial statements.)
F-4 |
| Table of Contents |
Consolidated Statements of Operations
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
For the Years Ended December 31, 2017 and 2016
Undesignated Preferred Stock 40,000 shares authorized Series A Preferred Stock 3,500,000 shares authorized Series B Preferred Stock 100,000 shares authorized Common Stock 500,000,000 shares authorized Common Shares Issued Par Value $0.01 per share Shares Issued Par Value $0.01 per share Shares Issued Par Value $0.01 per share Shares Issued Par Value $0.01 per share Stock Reserved For Future Issuance Additional Paid in Capital Treasury Stock Accumulated Deficit Total Equity Balance, December 31, 2015 Shares Issued for Debt Conversions Write-off of shares issuable for accrued interest Net income Balance, December 31, 2016 Shares issued on convertible notes Net income Balance, December 31, 2017 - $ - 3,381,520 $ 33,815 5,000 $ 50 58,162,669 $ 581,627 $ 197,865 $ 69,697,929 $ (773,500 ) $ (88,045,554 ) $ (18,307,768 ) - - - - - - 257,498,400 2,574,985 - 194,229 - - 2,769,214 - - - - - - - - (197,865 ) - - - (197,865 ) - - - - - - - - - - - 13,501,925 13,501,925 - $ - 3,381,520 $ 33,815 5,000 $ 50 315,661,069 $ 3,156,612 $ - $ 69,892,158 $ (773,500 ) $ (74,543,629 ) $ (2,234,494 ) - - - - - - 29,788,980 297,890 - - - - 297,890 - - - - - - - - - - - (700,483 ) (700,483 ) - $ - 3,381,520 $ 33,815 5,000 $ 50 345,450,049 $ 3,454,502 $ - 69,892,158 $ (773,500 ) $ (75,244,112 ) $ (2,637,087 )
(The accompanying notes are an integral part of these consolidated financial statements.)
F-5 |
| Table of Contents |
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 )
Consolidated Statements of Cash Flows
|
| For the Year Ended December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
|
|
|
|
|
| ||
Operating Activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Net income (loss) |
| $ | (700,483 | ) |
| $ | 13,501,925 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
| - |
|
|
| 2,252 |
|
Accretion expense |
|
| 180,716 |
|
|
| 693,785 |
|
Change in fair value of derivatives |
|
| 44,084 |
|
|
| (16,932,425 | ) |
Gain on Settlement of assets and payables |
|
|
|
|
|
| (563,585 | ) |
Loss on Convertible Debt |
|
| 250,149 |
|
|
| 2,766,193 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses and deposits |
|
| (75,000 | ) |
|
| - |
|
Accounts payable and accrued liabilities |
|
| 431,192 |
|
|
| 94,624 |
|
Accrued liabilities – related parties |
|
| (177,852 | ) |
|
| (56,572 | ) |
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities |
|
| (47,194 | ) |
|
| (493,803 | ) |
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from convertible debentures |
|
| 50,000 |
|
|
| 285,500 |
|
Proceeds from loans payable |
|
| - |
|
|
| 195,000 |
|
Net Cash Provided by Financing Activities |
|
| 50,000 |
|
|
| 480,500 |
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) In Cash |
|
| 2,806 |
|
|
| (13,303 | ) |
|
|
|
|
|
|
|
|
|
Cash - Beginning of Period |
|
| 260 |
|
|
| 13,563 |
|
|
|
|
|
|
|
|
|
|
Cash - End of Period |
| $ | 3,066 |
|
| $ | 260 |
|
|
|
|
|
|
|
|
|
|
Supplement Cash Flows Information: |
|
|
|
|
|
|
|
|
Cash paid for Income Taxes: |
| $ | - |
|
| $ | - |
|
Cash paid for interest |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Common shares issued for payment on convertible debt |
| $ | 10,724 |
|
| $ | 2,769,213 |
|
(The accompanying notes are an integral part of these consolidated financial statements.)
F-6 |
| Table of Contents |
US Highland, Inc.HIGHLAND, INC.
Consolidated Statements of Cash Flows
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
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
(The accompanying notes are an integral part of theseNotes to the consolidated financial statements.)statements
for the year ended December 31, 2017
| Summary of Business and Basis of Presentation |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014Organization and 2013Business
US Highland, Inc. 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 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 State 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. During 2017, the Company exited the recreational power sports OEM and leisure activity vehicles markets.
On March 8, 2018, the Company entered the fast-casual restaurant space through its share-exchange acquisition of TruFood Provision Co., a healthy dining establishment that plans to expand across the south east. TruFood Provision Co. is a healthy dining pure play, and positions the Company in the rapidly growing healthy eating space.
Basis of Presentation
The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented.
Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading.
Going concernConcern
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, 2014,2017, current liabilities exceed current assets by $47,612,935,$2,637,087 and the Company has an accumulated deficit of $103,112,026.$75,244,112. 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'sCompany’s development and marketing and manufacturing efforts.
Description of New Business Decisions
On September 30, 2016, the company recognized a write off of debt and prepaid expenses under the Oklahoma Statutes, Title 12, Section 12-95.A.1. and Section 12-95.A.2. for expired period of limitations.
| 2. | Summary of Significant Accounting Policies |
| a) |
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 Electricsubsidiaries, USH Distribution Corp., and Powersports Brand Alliance, Inc. All significant intercompany transactions and balances have been eliminated.
| F-7 |
| Table of Contents |
| 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) | 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.
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
Inventory is stated at the lower of cost or market, utilizing the specific lot identification method. Inventory consists of goods and parts for resale.
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:
|
| |
| ||
|
|
| 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, 20142017 or 2013.2016. 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 8 for additional information.
| 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. 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, 20142017 or 2013. 2016.
F-8 |
| Table of Contents |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
Research and development costs are expensed as incurred.
| ||||||||||||||||||||||||||||||||||||||||||
Basic earnings (loss) per common 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, 2017 and 2016, approximately 518,500,000 and 115,600,915 shares, respectively, underlying the convertible debentures and preferred shares were antidilutive.
| Subsequent Events |
The Company’s management reviewed all material events through the issuance date of this report for disclosure purpose.
| Recently Issued Accounting Pronouncements | ||
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014Company has implemented all new accounting pronouncements that are in effect and 2013that 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.
| 3. | Deposit on |
On March 8, 2018, the Company entered into a share exchange agreement with TruFood Provisions Co (TruFood). Per the agreement, the Company will exchange 65% of the issued and outstanding stocks of US Highland and $75,000 for 100% of the equity of TruFood. It is expected that all other debt related to the operation of TruFood will be retired at or prior to the closing date. As of December 31, 2017, the Company had deposited $30,000 related to this acquisition and recorded the remaining balance of $45,000 in accounts payable.
| 4. | Property and Equipment |
Depreciation expense amounted to $0 and $2,252 for the year ended December 31, 2017 and 2016, respectively.
On September 30, 2016, the company wrote off the property and equipment that was disposed.
| 5. | Loans Payable |
Loans payable consist of the following: |
| December 31, 2017 |
|
| December 31, 2016 |
| |||
a) | 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. |
| $ | 27,000 |
|
| $ | 27,000 |
|
b) | On February 27, 2014, and March 19, 2015, the Company received advances from a director of $6,000, and $10,200, respectively. During the year ended December 31, 2015, the Company repaid $13,200. The advances are unsecured, due on demand and bears interest at 1% per annum compounded and calculated monthly. |
| $ | 3,000 |
|
| $ | 3,000 |
|
c) | On September 18, 2014, May 29, 2015, July 3, 2015, December 2, 2015, and January 4, 2016, the Company entered into unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $35,000, $4,000, $5,000, $22,000, and $45,000, respectively. The loans bear interest at 8% per annum compounded annually and are due 1 year after the date of issuance. |
| $ | 111,000 |
|
| $ | 111,000 |
|
d) | On December 4, 2014, January 29, 2015, August 12, 2015, August 21, 2015, September 1, 2015, September 15, 2015, November 13, 2015, and December 23, 2015, the Company issued unsecured notes payable of $20,000, $20,000, $20,000, $25,000, $40,000, $25,000, $30,000 and $10,000, 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. |
| $ | 190,000 |
|
| $ | 190,000 |
|
f) | On September 2, 2016 the Company issued an unsecured note payable of $100,000 respectively to a significant shareholder. The note bears interest at an annual rate of 5% per annum, is uncollateralized, and due 1 year after the date of issuance. |
| $ | 100,000 |
|
| $ | 100,000 |
|
g) | On September 2, 2016 the Company issued an unsecured note payable of $50,000 respectively to a significant shareholder. The note bears interest at an annual rate of 5% per annum, is uncollateralized, and due 1 year after the date of issuance. |
| $ | 50,000 |
|
| $ | 50,000 |
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 481,000 |
|
| $ | 481,000 |
|
| Less Short-Term Portion |
|
| (481,000 | ) |
|
| (481,000 | ) |
| Long Term Loans Payable |
| $ | - |
|
| $ | - |
|
As of December 31, 2017, these loans are past due and therefore classified as current debt.
| F-9 |
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
| Related Party Transactions |
US Highland, Inc.
NotesCertain directors and management are no longer with the Company, and as such, there are no longer any related-party transactions. Prior year amounts consisted of notes payable, accrued interest, and wages and consulting fee expenses accrued and owed to Consolidated Financial Statements
For The Years Ended December 31, 2014former officers and 2013directors.
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 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 $ --
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
| 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 | |
| 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 | ||
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.
On December 31, 2015, the Company and the note holder agreed to extend the maturity date to December 31, 2016. 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 gain on extinguishment of debt of $492,585. The Company also recognized the fair value of the embedded conversion feature of $16,507,415 as a derivative liability and reduced the value of the convertible loan to $nil.
During the year ended December 31, 2015, the Company recorded total accretion of $500,000. At December 31, 2017 and 2016, the carrying value of the note was $500,000.
| c) | On February 11, 2016, the Company entered into two convertible promissory notes for a total of $275,000, pursuant to which the Company received proceeds of $237,500, net of an original issue discount of $25,000 and legal fees of $12,500. The notes are convertible at a price equal to |
| Company’s common stock for the 20 prior trading days, bearing interest at 8% per annum and due on February 11, 2017. Due to |
| F-10 |
| Table of Contents |
During the year ended December 31, 2017, the entire balance of the discounts and costs were recognized in full. At December 31, 2017 and 2016, the carrying value of the notes was $275,000 and $135,260 with unamortized discount of $nil and $139,740, respectively. These notes are past due as of the issuance of these financial statements, as a result the interest rate increased to 24%.
| d) | On May 17, 2016, the Company entered into a convertible promissory note for $55,000, pursuant to which the Company received proceeds of $48,000, net of an original issue discount of $5,000 and legal fees of $2,000. The notes are convertible at a price equal to 55% of the lowest trading price of the Company’s common stock for the 20 prior trading days, bearing interest at 8% per annum and due on May 17, 2017. Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the | |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years EndedAt December 31, 20142017 and 20132016, the carrying value of the notes was $55,000 and $9,544 with unamortized discount of $nil and $45,456, respectively. These notes are past due as of the issuance of these financial statements, as a result the interest rate increased to 24%.
| e) | On | |
| due on October 30, 2019. Due to |
At December 13, 2017, the carrying value of the note was $25,000.
| f) | ||
| due on November 30, 2019. Due to |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years EndedAt December 31, 2014 and 201313, 2017, the carrying value of the note was $25,000.
|
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
| 8. | Derivative Liabilities |
The embedded conversion options of the Company’s convertible debentures described in Note 7 contain conversion features that qualify for embedded derivative classification. The warrants described in Notes 7 and 10 also qualify for derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Balance at the beginning of year Addition of new derivative liabilities (embedded conversion options) Addition of new derivative liabilities (warrants) Change in fair value of warrants Change in fair value of embedded conversion option Conversion of warrants Modification of embedded conversion options Balance at the end of the year December 31,
2014December 31,
2013$ 29,430,719 $ 941,464 -- 14,028,014 53,606 9,209,794 (5,184,569 ) (627,690 ) 21,627,561 9,128,915 -- (3,249,778 ) 138,200 -- $ 46,065,517 $ 29,430,719
The following table summarizes the change in fair value will be reported in the statement of derivatives: 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:
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 )
|
| Year Ended |
|
| Year Ended |
| ||
|
| December 31, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
|
|
|
|
|
|
| ||
Balance at the beginning of the period |
| $ | 402,881 |
|
| $ | 16,886,192 |
|
|
|
|
|
|
|
|
|
|
Addition of new derivative liabilities |
|
| - |
|
|
| 403,539 |
|
Change in fair value of warrants |
|
| - |
|
|
| (290,276 | ) |
Change in fair value of embedded conversion option |
|
| 44,084 |
|
|
| (16,596,574 | ) |
Derecognition of derivative liabilities upon settlement of convertible notes |
|
| (37,017 | ) |
|
| - |
|
Balance at the end of the period |
| $ | 409,948 |
|
| $ | 402,881 |
|
| F-11 |
| Table of Contents |
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-ScholesBlack- 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:
| Expected Volatility |
| Risk-free Interest Rate |
| Expected Dividend Yield |
| Expected Life (in years) |
At December 31, 2016 | 134% - 216% |
| 0.20% - 1.03% |
| 0% |
| 0.25 - 2.50 |
At December 31, 2017 | 335% |
| 1.39% |
| 0% |
| 0.25 |
| 9. | Preferred Stock |
| a) | On September 30, 2015, the Company designated 3,500,000 shares of the Company’s 3,550,000 authorized “blank check” preferred stock as Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock shall, with respect to dividend rights, rights on liquidation, winding up and dissolution, rank senior to (i) all classes of common stock of the Company and (ii) any class or series of capital stock of the Company hereafter created (unless, with the consent of the holders of Series A Convertible Preferred Stock). The holders of the Series A Preferred Stock shall not entitled to receive any dividends and shall have the voting equivalency of 10 shares of common stock. Each holder of Series A Preferred Stock shall have the right at any time or from time to time from and after the day immediately following the date the Series A Preferred Stock is first issued, to convert each share of Series A Preferred Stock into 10 fully-paid and non-assessable share of common stock, par value $0.01 per share, of the Company. In connection with any conversion hereunder, each holder of Series A Convertible Preferred Stock if such conversion would cause such holder or any of its assignees to beneficially own more than 4.99% of the common stock of the Company. | |
| b) | On September 30, 2015, the Company issued an aggregate of 3,381,520 shares of Series A Convertible Preferred Stock at a fair value of $12,849,776 to settle convertible and promissory notes in the amount of $1,487,000 and accrued interest of $203,760. The Company recorded a gain on settlement of debt of $1,495,529. | |
| c) | On November 20, 2015, the Company designated 10,000 shares of the Company’s 3,550,000 authorized “blank check” preferred stock as Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock shall, with respect to dividend rights, rights on liquidation, winding up and dissolution, rank senior to (i) all classes of common stock of the Company and (ii) any class or series of capital stock of the Company hereafter created (unless, with the consent of the holders of Series B Convertible Preferred Stock). The holders of the Series B Preferred Stock shall not entitled to receive any dividends and shall have the voting equivalency of 4,000 shares of common stock. Each holder of Series B Preferred Stock shall have the right at any time or from time to time from and after the day immediately following the date the Series B Preferred Stock is first issued, to convert each share of Series B Preferred Stock into 4,000 fully-paid and non-assessable share of common stock, par value $0.01 per share, of the Company. In connection with any conversion hereunder, each holder of Series B Convertible Preferred Stock if such conversion occurred would cause such holder or any of its assignees to beneficially own more than 4.99% of the common stock of the Company. |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
2013 new notes - At issuance 53% - 329 % 0.10% - 1.41 % 0.69-3.00 At December 31, 2013 29% - 209 % 0.10% - 0.58 % 0.58-3.00 2014 new notes - At issuance At December 31, 2014 167% - 369 % 0.04% - 0.67 % 0.25-2.50 Expected
VolatilityRisk-free
Interest RateExpected
Dividend YieldExpected Life
(in years)0 % 0 % 209 % 0.38 % 0 % 3.00 0 %
Net loss before taxes Statutory rate Computed expected tax (recovery) Depreciation Accretion Loss on derivatives Loss on write-down of inventory Gain on settlement of debt Gain on sale of equipment Stock-based compensation Net operating loss Valuation allowance Net deferred taxes December 31,
2014December 31,
2013$ (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 ) $ -- $ --
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
| 10. | Common Stock |
| a) | ||
| b) | During September, 2016, the Company issued 115,989,052 shares of common stock to settle $56,552 on a debt conversion with two significant shareholders of the Company. | |
| c) | On October 6, 2016, the Company issued 24,655,278 shares of common stock to settle $4,330 on a debt conversion with two significant shareholders of the Company. | |
| d) | During November, 2016, the Company issued 78,374,583 shares of common stock to settle $11,234 on a debt conversion with two significant shareholders of the Company. | |
| e) | On July 13, 2017, the Company issued 29,788,980 shares of common stock to settle $8,800 of principal and $1,924 of interest on a debt conversion with a significant shareholder of the Company. | |
| f) | As of September 30, 2017, there was an insufficient amount of the Company’s authorized common stock to satisfy the potential number of shares that would be required to satisfy the outstanding convertible preferred shares and |
| F-12 | |
| 11. | Commitments |
| a) | On February | |
| b) | On |
| 12. | Earnings (Loss) Per Share |
A reconciliation of the components of basic and diluted net income per common share is presented in the tables below:
|
| For the Year Ended December 31, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||
|
| Income (Loss) |
|
| Weighted Average Common Shares Outstanding |
|
| Per Share |
|
| Income (Loss) |
|
| Weighted Average Common Shares Outstanding |
|
| Per Share |
| ||||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) attributable to common stock |
| $ | (700,483 | ) |
|
| 321,226,043 |
|
| $ | - |
|
| $ | 13,501,925 |
|
|
| 122,234,935 |
|
| $ | 0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common stock, including assumed conversions |
| $ | (700,483 | ) |
|
| 321,226,043 |
|
| $ | - |
|
| $ | 13,501,925 |
|
|
| 237,835,850 |
|
| $ | 0.06 |
|
| 13. | Income Taxes |
The Company is required to compute tax asset benefits for net operating losses carried forward. 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, 2017, and 2016. At December 31, 2017, $6,758,513 of federal and state net operating losses were available to the Company to offset future taxable income, which will expire commencing in 2030. 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. There is a potential that the NOL not be able to be used. The company is currently evaluating the ability to use the NOL in future periods.
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The items accounting for the difference between income taxes computed at the statutory rates and the provisions for income taxes are as follows for the years ended December 31, 2017 and 2016:
|
| December 31, 2017 |
|
| December 31, 2016 |
| ||
|
|
|
|
|
|
| ||
Net income (loss) before taxes |
| $ | (700,483 | ) |
| $ | 13,501,925 |
|
Statutory rate |
|
| 34 | % |
|
| 34 | % |
|
|
|
|
|
|
|
|
|
Computed expected tax (recovery) |
| $ | (238,164 | ) |
| $ | 4,590,655 |
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Depreciation |
|
| - |
|
|
| 2,252 |
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Accretion |
|
| 61,443 |
|
|
| 693,784 |
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Gain/Loss on derivatives and convertible notes |
|
| (100,039 | ) |
|
| (14,166,232 | ) |
Gain/Loss on write-down of assets and liabilities |
|
| 130 |
|
|
| 413,285 |
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Net operating loss |
|
| (119,441 | ) |
|
| (8,466,256 | ) |
Valuation allowance |
|
| 119,441 |
|
|
| 8,466,256 |
|
|
|
|
|
|
|
|
|
|
Net deferred taxes |
| $ | – |
|
| $ | – |
|
The Company follows the provisions of FASB ASC Subtopic 740-10-65-1, Income Taxes. As of December 31, 2017, and 2016, the valuation allowance was $6,526,656 and $6,407,215, respectively. The change in the valuation allowance was $119,441 and $8,228,044 for the years ended December 31, 2017 and 2016. As of December 31, 2017, and 2016, the Company did not recognize any liability for unrecognized tax benefits.
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S., federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, the Company has not completed the accounting for the tax effects of enactment of the Act; however, as described below, it has made a reasonable estimate of the effects on existing deferred tax balances. These amounts are provisional and subject to change operations.
14. Subsequent Events
a) | Subsequent to | |
b) | Subsequent to year end Adar Bays converted $11,159.39 of | |
c) | On January 4th 2018, the Company issued a | |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
A summary of the changes in the Company's common share purchase warrants is presented below:
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 Number 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
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
Fiscal year ending December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2018 December 31, 2019 Amount 63,989 65,982 67,975 69,968 17,866 $ 285,780
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
d) | ||
On | ||
e) | Refer to 8-K’s filed subsequent to year end. | |
f) | Subsequent to year end the | |
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE As previously reported in a Form 8-K filed on January 11, 2018, we engaged Fruci & Associates II, PLLC (“Fruci”) as our principal independent accountants. We dismissed GBH CPAs PC (“GBH”) as the Company’s independent registered public accounting firm. The decision to terminate the services of GBH and retain Fruci as the principal independent accountants was approved by our board of directors.
Not applicable In connection with the foregoing change in accountants, there was no disagreement of the type described in paragraph (a)(1)(iv) if Item 304 of Regulation S-K or any reportable event as described in paragraph (a)(1)(v) of such Item.
ITEMItem 9A. CONTROLS AND PROCEDURES Controls and Procedures
Management’s Report on Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ""“‘Exchange Act''Act’“). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer'sissuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our Chief Executive Officerchief executive officer and Chief Financial Officerchief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 20142017 in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
The Company had not filed its quarterly reports or any annual reports with the SEC since the third quarter of 2014. Management intends to implement internal controls to ensure that similar situations do not occur in the future and that required SEC filings will be timely. Management has retained the services of a new accounting firm, as well as an auditing firm specializing in public companies and a strong reputation in the auditing community. We have also hired a highly qualified interim Chief Financial Officer with extensive experience with public companies in the manufacturing industry. This newly implemented three tier process ties the Company's bookkeeping activities with a full service accounting firm that handles all financial reporting activities and the Company's interface with the selected auditing firm.
Management's Annual Report onChanges in Internal Control over Financial Reporting:
Our management is responsible for establishing and maintaining adequateThere were no changes in our internal control over financial reporting. Internal control over financial reporting is(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or underAct) occurred during the supervision of, a company's principal executive and principal financial officers and effected by a Company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the 1992 framework set forth in the report entitledInternal Control--Integrated Framework 1992issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment, our management has concluded that, as of the yearfiscal quarter ended December 31, 2014, our internal control over financial reporting is not effective based on those criteria.
Changes in Internal Control over Financial Reporting
During the year 2014, the Company hired a new Chief Executive Officer and Interim Chief Financial Officer, but there were no changes in our system of internal control over financial reporting during the year ended December 31, 20142017 that havehas materially affected, or areis reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
ITEMItem 9B. OTHER INFORMATION Other Information
None For events subsequent to the time period covered herein, see Note 1 in the Company’s Financial Statements. The Company recognized a write off of notes payable and accounts payable under the Oklahoma Statutes, Title 12, Section 12-95.A.1. and Section 12-95.A.2. with respect to expired period of limitations. The Company obtained a legal opinion in support of its decision to write-off the referenced notes payable and accounts payable.
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The following table sets forth certain information regarding our directors and executive officers:
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| 54 |
| President |
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Robert H. Harris, Chairman of the Board & Director
Mr. Robert Harris has served as a Chairman of the board of US Highland, Inc. since September 2011. From 2007 until 2013, he served as senior financial consultant and regional manager for St. James International, an independent investment consultancy firm headquartered in Malaga Spain. From 2005Directors are elected to 2007, Mr. Harris founded, established and created a sports entertainment organization called Elite Fighting Federation Ltd. where he served as president. From 2004 to 2007, Mr. Harris was a licensed real estate broker in B.C., Canada specializing in investment real estate. From 1992 to 2004, Mr. Harris served in management and supervisory capacities with Carter Dodge Chrysler Ltd.
Josh Whitaker, President, Chief Executive Officer & Director
Josh Whitaker has served as Chief Executive Officer and President of US Highland Inc. since May 2014. From 2012 until May 2014, he served as a Marketing consultant to US Highland Inc. From 2010 to present, he serves as a Managing Partner with To Create Action, a full service digital marketing, social management and email marketing company. From 2008 to 2010, he served as the Marketing Manager for Red Bull North America. From 2006 to 2008, he served as the Director of the Off Road Segment to Tucker Rocky Distributing. From 2002 to 2005, he served as the Director of Marketing for KTM North America, Inc.
Patrick Holmes, Director
Mr. Holmes is a director and investor of US Highland, Inc. since September 2013. From 2011 to the present Mr. Holmes continues as a nationally recognized restorer and historian of vintage and antique motorcycles. From 1998 until 2011, Mr. Holmes built a two location business in the field of vehicle collision repair in the city of Colorado Springs, Colorado. From 1996 until 1998, Mr. Holmes was General Manager of the "Otis Chandler Vintage Museum or Transport and Wildlife in Oxnard, California. From 1990 to 1996, Mr. Holmes opened and operated two Pizza restaurants in Santa Barbara, California which he sold in 1996. Mr. Patrick Holmes emigrated from England to the United States, as East coast manager for a holiday tour wholesaler in 1984.
Kevin G. Malone, Director
Since February 2013, Kevin Malone has served on the board of US Highland Inc. Prior to joining US Highland Mr. Malone has worked in the financial service industry since 1985. From March 2009 through October 2012, Mr. Malone served as head trader for R.F. Lafferty & Company, Inc. From January 2006 until March 2009, Mr. Malone worked in the same capacity at Westminster Securities Corporation. From December 2002 through January 2006, Mr. Malone worked for Aegis Capital Corporation.
Deborah Engles, Interim Chief Financial Officer
Deborah Engles has served US Highland Inc. as the Interim Chief Financial Officer since August 2014. From 2012 to 2014, she served as its Executive Manager of Administration and Finance, and from 2009 to 2012, she served as US Highland Inc.'s Office Manager. From 2006 to 2010, she served as Officer Manager to several small startup companies.
Each director holds officeserve until the next annual meeting of stockholders orand until their successors are elected and qualified. Directors are elected by a plurality of the votes cast at the annual meeting of stockholders and hold office until the expiration of the term for which he or she was elected and until a successor has been duly elected and qualified.
A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action.
Executive officers are elected annuallyappointed by, and serve at the discretionpleasure of, the Board of Directors of the Company, subject to any contractual arrangements.
Everett M. Dickson, Director
On June 27, 2017, the Board of Directors of the Company appointed Everett M. Dickson as President and Chief Executive Officer of the Company. Since June 28, 2018, Mr. Dickson has served as Interim Chief Financial Officer of the Company. Mr. Dickson has been serving as a member of the Company’s Board of Directors since June 2017. From 2012 until his joining the Company in June 2017, Mr. Dickson worked in the moist tobacco and alternative fuels industry. From 2005 through 2011, Mr. Dickson worked in the alternative fuels industry.
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the Board of Directors be “independent” and, as a result, we are not at this time required to have our boardBoard of Directors comprised of a majority of “independent directors.”
Family Relationships
There are no familial relationships among any of our directors or officers.
Involvement in Certain Legal Proceedings
None of our directors or officers is a director in any other U.S. reporting companies other than as disclosed above. None of our directors orexecutive officers has been affiliated with any company that has filed for bankruptcy within the last ten years. The Company is not aware of any proceedings to whichinvolved in any of the Company's officersfollowing events during the past ten years:
any bankruptcy petition filed by or directors,against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
any associateconviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
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being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any such officercourt of competent jurisdiction, permanently or director, is a party adverse to the Companytemporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of the Company's subsidiariesbusiness, securities or has a material interest adverse to itbanking activities; or any of its subsidiaries.
Codebeing found by a court of Ethics competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Audit Committee
We currently do not have adopted a codeseparately standing Audit Committee due to our limited size and our Board performs the functions that would otherwise be performed by an Audit Committee.
Compensation Committee
The Company does not have a Compensation Committee due to our limited size and our Board performs the functions that would otherwise be performed by a Compensation Committee. Our Board intends to form a Compensation Committee when needed.
Other Committees
We do not currently have a separately-designated standing nominating committee. Further, we do not have a policy with regard to the consideration of business conduct and ethics forany director candidates recommended by security holders. To date, no security holders have made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our employees, includingBoard, it is not practical for us to have committees other than those described above, or to have more than two directors on such committees. If we are able to grow our principal executive officer, principal financial officer, principal accounting officer,business and directors. Our codesincrease our operations, we intend to expand the size of business conductour board and ethics are available on our Web site at www.ushighland.com.committees and allocate responsibilities accordingly.
Our Web site and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K or our other filings with the SEC.
Potential Conflicts of Interest
SinceBecause we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. The Board of Directors has not established an audit committee and does not have a financial expert, nor has the Board established a nominating committee. The Board is of the opinion that such committees are not necessary since the Company has only five directors, and to date, such directors have been performing the functions of such committees. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.
Involvement in Certain Legal Proceedings Significant Employees
There are no legal proceedings thatWe do not have occurred within the past ten years concerningany significant employees other than our current executive officers and directors or control persons which involvednamed in this Report.
Code of Ethics
We have not yet adopted a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one's participationcode of business conduct and ethics for all of our employees, including our principal executive officer, principal financial officer, principal accounting officer, and directors. We intend to do so in the securities or banking industries, or a finding of securities or commodities law violations. near future and to post it on our website at www.ushighland.com.
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Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.
During the fiscal year ended December 31, 2017, none of our officers and directors filed Section 16(a) reports. The Company’s current officers and directors intends to file such reports in the near future.
Other than the foregoing, based solely on our review of the copies of such forms received by us, we believe that all filing requirements applicable to our greater than 10% beneficial owners were complied with under Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2017.
ITEMItem 11. EXECUTIVE COMPENSATION Executive Compensation
The following table sets forth information concerningconcerns the annual and long-termtotal compensation of our chiefpaid or accrued by the Company during the last two fiscal years indicated to (i) all individuals that served as the Company’s principal executive officer and chief financial officer andor acted in a similar capacity for the Company at any time during the fiscal year ended December 31, 2017; (ii) the two most highly compensated employees and/or executive officers who servedwere serving as executive officers of the Company at the end of the fiscal years December 31, 2014 and 2013, and whose salary and bonus exceeded $100,000 for the fiscal yearsyear ended December 31, 20142017 whose total compensation exceeded $100,000; and 2013,(iii) up to two additional individuals for services rendered in all capacitieswhom disclosure would have been provided pursuant to us. clause (ii) above but for the fact that the individual was not serving as an executive officer of the Company at the end of the fiscal year ended December 31, 2017.
Summary Compensation TableNONE
Name & Principal Position John R. Fitzpatrick 144,000 0 0 0 0 0 0 144,000 12/31/2013 144,000 0 0 0 0 0 0 144,000 Josh Whitaker 12/31/2014 Year Ended Salary
($) Bonus
($) Stock
Awards
($) Option
Awards
($) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings
($) All Other Compensation ($) Total
($) 12/31/2014 144,000 0 0 0 0 0 0 144,000
DIRECTOR COMPENSATION Director Compensation
The RegistrantCompany does not compensate its directors other than the Chairman of the Board for their services as such. The Registrant paid Robert H. Harris as Chairman of the Board of Directors $0 in 2014 and $0 in 2013. The Registrant reimburses the directors for their reasonable out-of pocket expenses for attending meetings of the board of directors.
Long-Term Incentive Plans.
As of December 31, 2014, we2017, the Company had no group life, health, hospitalization, or medical reimbursement or relocation plans in effect. Further, wethe Company had no pension plans or plans or agreements which provide compensation on the event of termination of employment or corporate change in control.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of our Common Stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our Common Stock indicated as beneficially owned by them.
The following table lists,sets forth information with respect to the beneficial ownership of each class of our voting securities as of June 30, 2015, the number of shares of common stock of our Company that are beneficially ownedDecember 31, 2017, by (i) each person or entityof our directors and executive officers, (iii) all of our directors and executive officers as a group and (iii) each stockholder known to our Companyby us to be the beneficial owner of more than 5% of our outstanding voting capital stock. To the outstanding common stock; (ii) each officer and directorbest of our Company; and (iii) all officers and directorsknowledge, except as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished byotherwise indicated, each person using "beneficial ownership" concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includespersons named in the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each persontable has sole voting and investment power. power with respect to the shares of our capital stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company or any of its parents, the operation of which may at a subsequent date result in a change in control of the Company.
Name and Address Craigstone Ltd. 88 Wood Street 10#,1 London EC2V 7RS, United Kingdom John D. Gibbs Tri Power Resources P.O. Box 849 Ardmore, Oklahoma 73402 AMHC Managed Services 2 North Cascade Avenue, Suite 1400 Colorado Springs, Colorado 80903 Groupo Vargas SA Brookstone Partners LLC Henville Building Prince Charles Street Charlestown, Nevis Robert H. Harris, Board Chairman Selene 32, B41, Bella Vista Santo Domingo, District National Dominican Republic Patrick Holmes, Director 2825 Black Canyon Road Colorado Springs CA 80904 Kevin G. Malone, Director 9 Wellsley Road Rockville Centre, New York 11570 Directors and Officers as a group (3 persons) Common Shares Percentage 32,897,916 (1) 37.40 % 22,000,000 24.38 % 7,533,333 9.69 % 3,968,056 (2) 5.08 % 5,990,278 (3) 7.69 % 436,667 0.56 % 500,000 0.64 % 1,875 0.002 % 938,542 1.21 %
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Unless otherwise indicated in the following table, the address for each person named in the table is c/o US Highland, Inc. 3500 Lennox Road, Suite 1500, Atlanta, Georgia 30309.
Name and Address of Beneficial Owner Amount Percent of Class Amount Percent of Class Amount Percent of Class Officers & Directors: Robert H. Harris -Former Chairman of the Board of Directors * Kevin G. Malone -Former President and Director * Deborah E. Engles -Former Interim Chief Financial Officer * All Directors and Officers as a group (3 persons) * *Percent of common shares owned by directors and officers is less than 1% 5% Stockholders: Craigstone, Ltd. 88 Wood Street 10th Floor London, EC2V 7RS United Kingdom Common Stock Series A Preferred Stock Series B Preferred Stock 436,557 0 0 0 0 1,875 0 0 0 0 8,669 0 0 0 0 447,211 0 0 0 0 22,666,667 6.56 % 2,484,422 73.47 % 5,000 100 %
Securities Authorized for Issuance under Equity Compensation Plans
We have not adopted any equity compensation plans.
Changes in Control
We are not aware of any arrangements, including any pledge by any person of our securities, the operation of which may result in a change in control of the Company. However, pursuant to our Articles of Incorporation, our board has the authority, without further stockholder approval, to provide for the issuance of up to 3,550,000 shares of our preferred stock in one or more series and to determine the dividend rights, conversion rights, voting rights, rights in terms of redemption, liquidation preferences, the number of shares constituting any such series and the designation of such series. Our Board has the power to afford preferences, powers and rights (including voting rights) to the holders of any preferred stock preferences, such rights and preferences being senior to the rights of holders of common stock. As of December 31, 2017, 40,000 shares of “blank check” preferred stock remain available for designation and issuance. Although we have no present intention to issue any additional shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, may have the effect of delaying, deferring or preventing a change in control of our Company.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
On October 28, 2013, the Company issued 533,333 shares of common stock to AMHC Managed Services Inc. in consideration for the early termination of their management services contract. The shares were valued at $0.05 per share, the fair value on the date of grant.
On March 13, 2013, the Company issued 4,500,000 shares of common stock to John Gibbs in consideration for cash. The shares were valued at $0.05 per share, the fair value on the date of grant.
On March 18, 2013, the Company issued 420,000 shares of common stock to Robert Harris, a director, to convert a demand loan held by Mr. Harris. The shares were valued at $0.05 per share, the fair value on the date of grant.
On February 15, 2013, the Company issued 5,000,000 shares of common stock to AMHC Managed Services Inc. upon exercise of a warrant by AMHC at a share price of $0.0005.
On December 10, 2013, the Company issued 2,000,000 shares of common stock to AMHC Managed Services Inc. upon exercise of a warrant by AMHC at a share price of $0.0005.
All the foregoing issuances were conducted in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.
Item 13. Certain Relationships and Related Transactions and Director Independence
WeUnder Rule 404 of Regulation S-K, we are not subjectrequired to listing requirementsdescribe any transaction, since the beginning of December 31, 2015, or any currently proposed transaction, in which the Company was or is to be a participant and in which any related person has or will have a direct or indirect material interest involving the lesser of $120,000 or one percent (1%) of the average of the Company’s total assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director, or holder of 5% or more of the Company’s Common Stock, or an immediate family member of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of "independent directors." those persons.
None.
ITEMItem 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Principal Accounting Fees and Services
Audit Fees On January 11, 2018, we appointed Fruci & Associates II, PLLC of Spokane, Washington, as our new independent certified public accountants beginning with the period ended September 30, 2016, and for subsequent periods.
We incurredAudit Fees
The aggregate fees of approximately $7,000 for GBH CPAs, PCbilled the Company for the 2014 fiscal year. Such fees included work completedyears ended December 31, 2017 and 2016 for professional services rendered by Fruci & Associates II, PLLC (“Fruci”), our principal accountants, respectively, for their audit of our annual auditsfinancial statements and reviews. review of financial statements included in our quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:
Fiscal Year Ended December 31, 2017: Fiscal Year Ended December 31, 2016: Audit Related Fees $ 13,000 $ 11,500
We did not incur any audit related fees to GBH CPAs, PC during fiscal 2014 or 2013. Audit-Related Fees
Tax Fees The aggregate fees billed the Company for the fiscal years ended December 31, 2017 and 2016 for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant’s financial statements and are not reported under Item 9(e)(1) of Schedule 14A.
Fiscal Year Ended December 31, 2017: Fiscal Year Ended December 31, 2016: We did not incur any$ 0 $ 0
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Tax Fees
The aggregate fees billed the Company for the fiscal years ended December 31, 2017 and 2016 for professional services rendered by the principal accountant for tax compliance, tax advice, orand tax planningplanning.
Fiscal Year Ended December 31, 2017: Fiscal year ended December 31, 2016: $ 5,000 $ 0
All Other Fees
The aggregate fees billed the Company for the fiscal years ended December 31, 2014 and 2013 fiscal years. 2015 for products and services provided by the principal accountant, other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A.
Fiscal Year Ended December 31, 2015: Fiscal year ended December 31, 2014: All Other Fees$ 0 $ 0
Pre-Approval Policies and Procedures
We didhave not incur anyused Fruci or GBH for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other feesservice providers. We never engaged Fruci or GBH to GBH CPAs, PC during fiscal 2014 or 2013.
Theprovide compliance outsourcing services. Our board of directors acting as the Audit Committee considered whether, and determined that, the auditor's provision of non-auditpre-approves all services was compatible with maintaining the auditor's independence.provided by our independent auditors. All of the above services described above for fiscal years 2014 and 2013fees were reviewed and approved by the board of directors pursuanteither before or after the respective services were rendered. The board of directors has considered the nature and amount of fees billed by Fruci and GBH and believes that the provision of services for activities unrelated to its policies and procedures. In fiscal year 2015, we engaged GBH CPAs, PC to be the Company's independent auditors. We intend to continue using GBH CPAs, PC solely for audit and audit-related services, tax consultation and tax compliance services, and, as needed, for due diligence in acquisitions. is compatible with maintaining our independence.
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PART IV Item 15. Exhibits
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Financial statement included in Part II hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Changes in Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
SIGNATURES
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Pursuant toSIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized person. authorized.
| Date: | By: | /s/ Everett M. Dickson | |
Name: | Everett M. Dickson | ||
| Title: | Chief Executive Officer | ||
(Principal Executive Officer) | |||
Date: April 4, 2018 | By: | /s/ |
|
| Name: | Everett M Dickson |
|
| |||
Title: |
| ||
| Interim Chief Financial Officer |
| ||
|
| (Principal Financial and Accounting Officer) |
|
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