As filed with the U.S. Securities and Exchange Commission on September 20, 2018.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
Washington, D.C. 20549
_______________
FORM S-1
Registration Statement
Under the Securities Act of
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
US Highland, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
________________
CRUZANI, INC. |
(f/k/a US Highland, Inc. |
(Exact Name of |
Nevada | 3751 | 26-4144571 | ||
(State or Other Jurisdiction of | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
3500 Lennox Road, Suite 1500
Atlanta, Georgia 30309
(404) 419-2253
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Everett M. Dickson
Chief Executive Officer
Cruzani, Inc.
3500 Lennox Road, Suite 1500
Atlanta, Georgia 30309
(404) 419-2253
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Ms. Jody Walker ESQ.
7841
Joseph M. Lucosky, Esq.
Scott E. Linsky, Esq.
Lucosky Brookman LLP
101 Wood Ave. South Garfield Way
Centennial, CO 80122
Phone 303-850-7637 Fax 303-482-2731
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable
Woodbridge, NJ 08830
(732) 395-4400
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. []
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box [x]
2
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer: | ¨ | Accelerated filer: | ¨ | ||
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | x | |
Emerging growth company | ¨ |
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered |
| Amount to be Registered (1) |
|
| Proposed Maximum Offering Price Per Share (3)(4) |
|
| Proposed Maximum Aggregate Offering Price |
|
| Amount of Registration Fee |
| ||||
Common Stock, $0.00001 par value per share |
|
| 3,100,000 |
| $ | 0.105 |
| $ | 325,500.00 |
| $ | 40.52 | ||||
Common Stock, $0.00001 par value per share, issuable upon exercise of Warrants |
|
| 76,381 | (2) |
| $ | 0.105 |
| $ | 8,020.01 |
| $ | 1.00 | |||
Total: |
|
| 3,176,381 |
|
|
|
|
| $ | 333,520.01 |
| $ | 41.52 | |||
____________
(1) | An indeterminate number of additional shares of common stock shall be issuable pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”) to prevent dilution resulting from stock splits, stock dividends or similar transactions and in such an event the number of shares registered shall automatically be increased to cover the additional shares in accordance with Rule 416. The amount of shares of common stock to be registered reflects the assumed 1-for-100 reverse stock split of our common stock, which will be effected prior to the effectiveness of this registration statement. |
(2) | All 76,381 shares of Common Stock |
(3) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act. |
(4) | Based on the average of the high and low sales prices for the registrant’s common stock on September 11, 2018, adjusted to reflect the assumed 1-for-100 reverse stock split of our common stock, which will be effected prior to the effectiveness of this registration statement. |
The Registrant hereby may amend this registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until US Highlandthe Registrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall hereafterthereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statementRegistration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.3
Preliminary Prospectus Dated June 18, 2010. SUBJECT TO COMPLETION
$2,820,131
Up to a maximum of 1,880,087 common shares at $1.50 per Common Share
609,913 common shares on behalf of selling security holders
US Highland, Inc.
US Highland is offering up to 1,880,087 common shares at the purchase
price of $1.50 per common share for the aggregate offering price of
$2,820,131.
We are registering 609,913 common shares on behalf of selling security
holders. We will not receive any cash or other proceeds in connection
with the subsequent sale by the selling security holders.
The 609,913 common shares included in this prospectus may be offered
and sold directly by the selling security holders. The selling
security holders may sell at prevailing prices or privately negotiated
prices. We will not control or determine the price at which a selling
security holder decides to sell its shares. Brokers or dealers
effecting transactions in these shares should confirm that the shares
are registered under applicable state law or that an exemption from
registration is available.
The offering will commence on the effective date of this prospectus and
will terminate on or before June 30, 2011.
Our common stock is currently listed on the NASD Over-The-Counter
Bulletin Board under the symbol UHLN.
We will sell the common shares ourselves and do not plan to use
underwriters or pay any commissions. We will be selling our common
shares using our best efforts and no one has agreed to buy any of our
common shares. There is no minimum amount of common shares we must sell
so no money raised from the sale of such common shares will go into
escrow, trust or another similar arrangement.
Consider carefully the risk factors beginning on page 7 in this
prospectus.
Neither the SEC nor any state securities commission has approved these
common shares or determined that this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.4
Proceeds
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 2018
PRELIMINARY PROSPECTUS
Cruzani, Inc.
3,176,381 Shares of Common Stock
_____________________________________
This prospectus relates to the offer and resale of up to 3,176,381 shares of our common stock, par value $0.00001 per share, by the selling stockholders identified on page 12. The common stock offered consists of: (i) up to 3,100,000 shares of common stock (the “Common Stock”) and (ii) up to 76,381 shares of common stock issuable upon exercise of outstanding warrants (the “Warrants”).
The shares of Common Stock being registered hereunder represent shares that L2 Capital, LLC (“L2 Capital”) has agreed to purchase from us pursuant to the terms and conditions of an Equity Purchase Agreement we entered into with them on July 23, 2018 (the “Equity Purchase Agreement”). Subject to the terms and conditions of the Offering
Per Common Share Total
Offering Price $1.50 $2,820,131
ProceedsEquity Purchase Agreement, we have the right to US Highland, before expenses $1.50 $2,820,131
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TABLE OF CONTENTS
Prospectus Summary 6
Risk Factors 7
Forward Looking Statements 13
Use“put,” or sell, up to $5,000,000 worth of Proceeds 14
Dilution 15
Planshares of Distribution and Selling Security Holders 15
Business Operations 18
Dividend Policy 25
Determination of Offering Price 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
Directors, Executive Officers and Control Persons 28
Security Ownership of Certain Beneficial Owners
and Management 34
Certain Relationships and Related Transactions 35
Description of Capital Stock 36
Shares Eligible for Future Sale 37
Disclosure of Commission Position on Indemnification
for Securities Act liabilities 38
Market for Common Stock and Related Stockholder Matters 38
Experts 40
Legal Proceedings 40
Legal Matters 40
Where You Can Find More Information 40
Financial Statements 41
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PROSPECTUS SUMMARY
To understand this offering fully, you should readour common stock to L2 Capital. This arrangement is also sometimes referred to herein as the entire prospectus
carefully, including the risk factors beginning on page 6 and the
financial statements.
Corporate
Operations US Highland is a recreational powersports
product development company and OEM. US
Highland's proprietary products include a 250-
550cc single cylinder 4 stroke engine line, a
750-1150cc v-twin engine line, a quad product
line, and a motorcycle product line.
Common stock
outstanding 21,462,500
Common stock being
sold in this offering 1,880,087 common shares to be reissued from
treasury shares
Common Shares being
sold in this offering
by selling security
holders 609,913
Sales by Selling
Security Holders The selling security holders may sell at
prevailing prices or privately negotiated
prices.“Equity Line.” We are also registering for resale the shares of common shares on behalf ofstock underlying the selling security holders in this
prospectus. We will not receive any cash or
other proceedsWarrants which were issued to L2 Capital in connection with the subsequent sales. We are not selling any
common shares on behalf of selling security
holders and have no control or affect onEquity Purchase Agreement.
For more information about the selling security holders.
Termination ofstockholders, please see the Offering The offering will commence on the effective datesection of this prospectus and will terminateentitled “Selling Stockholders” beginning on page 12.
The selling stockholders may sell any shares offered under this prospectus at fixed prices, prevailing market prices at the time of sale, at varying prices or before June 30, 2011.
Market fornegotiated prices.
L2 Capital is an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in connection with the resale of our common stock Our common stock is quoted on the OTC Electronic
Bulletin Board under the symbol UHLN. We cannot
provideEquity Line, and any assurancebroker-dealers or agents that an active marketare involved in our common stock will develop.
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RISK FACTORS
Our business is subject to numerous risk factors, including the
following.
1. We cannot offer any assurance as to our future financial results.
You may lose your entire investment.
We have generated limited revenues in 2010, primarily from business
development activities, including contract engineering and licensing.
We are gearing up for volume production, targeted to start later this
year. We cannot assure that we can operate in a profitable manner. As
a result, future financial results are uncertain. You may lose your
entire investment.
2. Our capitalization is limited. We may never reach profitable
operations.
If unforeseen circumstances occur, our capitalizationsuch resales may be such that,
even following completion of this offering, our management may be unable
to implement our expanded plan of operation.
3. Our operations have limited diversity. If we are unable to
successfully generate revenues from our current activities, we may not
be able to obtain profitable operations.
We will create revenues through 1) sales and manufacturing of our
products, 2) license and distribution agreements, and 3) engineering
development projects for other OEMs. Financial viability will depend on
our ability to generate revenues from these three revenue generating
activities.
4. Loss of our key executive(s) and our failure to attract qualified
management could limit our growth and negatively impact our operations.
We depend highly upon our officers and directors; however, we do have
limited skillset redundancy. As our operations increase, we will
require operations management personnel with experience to our business.
The loss of the services of any officer or director or the inability to
hire experienced operations management personnel could materially
adversely affect our operations and financial condition.
5. We may obtain directors' and officers' liability insurance. The
cost of this insurance may be expensive to maintain.
US Highland may, at its discretion, obtain directors' and officers'
liability insurance. Such insurance is generally expensive to maintain.
If US Highland is unable to obtain and maintain director and officer
liability insurance to cover amounts, if any, requireddeemed to be indemnified
by US Highland, any payments made by US Highland under an
indemnification agreement will have a negative material effect on US
Highland's earnings and cash flow.
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6. We sell our products at wholesale and must rely on a network of
independent dealers and distributors to manage“underwriters” within the retail distribution
of our products. We could face adverse consequences related to the
termination of any of these relationships or inability to secure
sufficient numbers of dealers and distributors.
We depend on the capability of our independent dealers and distributors
to develop and implement effective retail sales plans to create demand
among retail purchasers for the motorcycles and related products and
services that the dealers and distributors purchase from the registrant.
If our independent dealers and distributors are not successful in these
endeavors, we will be unable to maintain or grow our revenues and meet
our financial expectations. Further, independent dealers and
distributors may experience difficulty in funding their day-to-day cash
flow needs and paying their obligations because of weakened retail sales
and tightening credit. If dealers are unsuccessful, they may exit or be
forced to exit the business or, in some cases, we may seek to terminate
relationships with certain dealerships. As a result, we could face
additional adverse consequences related to the termination of dealer
relationships. Additionally, liquidating a former dealer's inventory of
new and used motorcycles can add downward pressure on new and used
motorcycle prices. Further, the unplanned loss of any of our
independent dealers may lead to inadequate market coverage for retail
sales of new motorcycles and for servicing previously sold motorcycles,
create negative impressions of the registrant with our retail customers,
and adversely impact our ability to collect wholesale receivables that
are associated with that dealer.
7. Our dealers may experience a decline in retail sales resulting from
general economic conditions, tightening of credit, political events or
other factors.
The motorcycle industry has been affected by general economic conditions
over which motorcycle manufacturers have little control. These factors
have caused a weaker retail environment leading to weaker demand for
discretionary purchases, and the decision to purchase a motorcycle has
been and may continue to be affected by these factors. The related
tightening of credit has led to more limited availability of funds from
financial institutions and other lenders and sources of capital which
ahs adversely affected and could continue to adversely affect the
ability of retail consumers to obtain loans for the purchase of
motorcycles from lenders. Should general economic conditions or
motorcycle industry demand continue to decline, our results of
operations and financial condition may be adversely affected. The
motorcycle industry can also be affected by political conditions and
other factors over which motorcycle manufacturers have little control.
8. Our dealers may experience a decline in retail sales resulting from
declining prices for used motorcycles and excess supplies of new
motorcycles.
We have observed that prices for used motorcycles have declined in
recent years, which may have the effect of reducing demand among retail
purchasers for new motorcycles, at manufacturer's suggested retail
prices. While we will attempt to monitor production of our new
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motorcycles in an effort to keep supply in line with demand, our
competitors could choose to supply additional new motorcycles to the
market at reduced prices which could also have the effect of reducing
demand for new motorcycles (at manufacturer's suggested retail prices).
Ultimately, reduced demand among retail purchasers for new motorcycles
will lead to reduced shipments by the registrant.
9. We may not be able to successfully execute our manufacturing
strategy.
Our manufacturing strategy is designed to continuously improve product
quality, increase productivity, reduce costs and increase flexibility to
respond to changes in the marketplace. Management believes flexible
manufacturing, including flexible supply chains and flexible labor
agreements, is the key element to enable improvements in our ability to
respond to customers in a cost effective manner. To implement this
strategy, we must be successful in our continuous improvement efforts
which are dependent on the involvement of management, production
employees and suppliers. Any inability to achieve these objectives
could adversely impact the profitability of the registrant's products
and its ability to deliver the right product at the right time to the
customer.
10. The registrant and relies on third party suppliers to obtain raw
materials and provide component parts for use in the manufacture of its
motorcycles.
We cannot be certain that we will not experience supply problems such as
unfavorable pricing or untimely delivery of raw materials and
components. In certain circumstances, we rely on a single supplier to
provide the entire requirement of a specific part, and a change in this
established supply relationship may cause disruption in our production
schedule. In addition, the price and availability of raw materials and
component parts from suppliers can be adversely affected by factors
outside of our control such as the supply of a necessary raw material.
Further, our suppliers may experience difficulty due to financial market
disruption in funding their day-to-day cash flow needs because of
tightening credit, and those suppliers who also serve the automotive
industry may be experiencing financial difficulties due to a downturn in
that industry, which could adversely affect their ability to supply the
registrant. These supplier risks may have a material adverse effect on
the registrant's business and results of operations.
11. Government actions to stabilize credit markets in 2009 are
scheduled to end in 2010 which could have a negative impact on capital
markets.
In 2009, the U.S. Government enacted legislation and created several
programs to help stabilize credit markets and financial institutions and
restore liquidity, including the Federal Reserve's Commercial Paper
Funding Facility and the Federal Reserve Bank of New York's Term Asset-
backed securities Loan Facility program, both of which are scheduled to
10
expire in 2010. The expiration of these programs could have a negative
impact on capital markets and limit our access to capital market
funding. These negative consequences may in turn adversely affect our
business and results of operations in various ways, including through
higher costs of capital, reduced funds available through its financial
services operations to provide loans to independent dealers and their
retail customers, and dilution to existing shareholders through the use
of alternative sources of capital.
12. We have a number of competitors of varying sizes that are based
both inside and outside the United States some of which have greater
financial resources than the registrant.
Many of our competitors are more diversified than the registrant, and
they may compete in the automotive market or all segments of the
motorcycle market. Also, the registrant's manufacturer's suggested
retail price for its motorcycles is generally higher than its
competitors, and if price becomes a more important competitive facts or
for consumers in the heavyweight motorcycle market, the registrant may
be at a competitive disadvantage. Failure to adequately address and
respond to these competitive pressures worldwide and in the United
States may have a material adverse effect on the registrant's business
and results of operations.
Our ability to remain competitive is dependent upon its capability to
develop and successfully introduce new, innovative and compliant
products. The motorcycle market continues to advance in terms of cutting
edge styling and new technology and, at the same time, be subject to
increasing regulations related to safety and emissions. We must continue
to distinguish our products from our competitors' products with unique
styling and new technologies and to protect its intellectual property
from imitators. The registrant must also be able to design and
manufacture these products and deliver them to the marketplace in an
efficient and timely manner. There can be no assurances that the
registrant will be successful in these endeavors or that existing and
prospective customers will like or want our new products.
13. Our operations are dependent upon attracting and retaining skilled
employees, including executive officers. Our future success depends on
its continuing ability to identify, hire, develop, motivate and retain
skilled personnel for all areas of its organization.
Our current and future total compensation arrangements, which include
benefits and cash bonuses, may not be successful in attracting new
employees and retaining and motivating our existing employees. If the
registrant does not succeed in attracting personnel or retaining and
motivating existing personnel, including executive officers, we may be
unable to develop and distribute products and services and effectively
execute its plans and strategies.
11
14. We manufacture products that create exposure to product liability
claims and litigation.
To the extent plaintiffs are successful in showing that personal injury
or property damage result from defects in the design or manufacture of
our products, we may be subject to claims for damages that are not
covered by insurance. The costs associated with defending product
liability claims, including frivolous lawsuits, and payment of damages
could be substantial. Our reputation may also be adversely affected by
such claims, whether or not successful.
15. We must comply with governmental laws and regulations that are
subject to change and involve significant costs.
Our sales and operations in areas outside the U.S. may be subject to
foreign laws, regulations and the legal systems of foreign courts or
tribunals. These laws and policies governing operations of foreign-based
companies may result in increased costs or restrictions on the ability
of the Company to sell its products in certain countries. Our
international sales operations may also be adversely affected by United
States laws affecting foreign trade and taxation.
We are subject to income and non-income based taxes in the United States
and in various foreign jurisdictions. Significant judgment is required
in determining our worldwide income tax liabilities and other tax
liabilities. Management believes that it complies with applicable tax
law. If the governing tax authorities have a different interpretation of
the applicable law or if there is a change in tax law, our financial
condition and/or results of operations may be adversely affected.
Our domestic sales and operations are subject to governmental policies
and regulatory actions of agencies of the United States Government,
including the Environmental Protection Agency, SEC, National Highway
Traffic Safety Administration, Department of Labor and Federal Trade
Commission. In addition, our sales and operations are also subject to
laws and actions of state legislatures and other local regulators,
including dealer statutes and licensing laws. Changes in regulations or
the imposition of additional regulations may have a material adverse
effect on our business and results of operations.
Our motorcycle products use internal combustion engines. These
motorcycle products are subject to statutory and regulatory requirements
governing emissions and noise, including standards imposed by the EPA,
state regulatory agencies, such as California Air Resources Board, and
regulatory agencies in certain foreign countries where our motorcycle
products are sold. We are also subject to statutory and regulatory
requirements governing emissions and noise in the conduct of our
manufacturing operations. Any significant change to the regulatory
requirements governing emissions and noise may substantially increase
the cost of manufacturing our products. Further, in response to concerns
about global climate changes, we may face greater regulatory or customer
pressure to develop products that generate less emissions. This may
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require us to spend additional funds on research, product development,
implementation costs and subject us to the risk that our competitors may
respond to these pressures in a manner that gives them a competitive
advantage.
9. Changes in the foreign exchange rate could negatively affect our
profitability.
We face foreign exchange rate exposure. We will offer payment for our
products and services in U.S. dollars except for our Canadian customers
who will pay us in Canadian dollars. We carry out all fundraising in
U.S. dollars. With the majority of expenses expected to be in United
States dollars, we will be exposed to fluctuations in foreign exchange
rates from both a transactional and transnational perspective. There is
a risk that foreign exchange rate fluctuations between the Canadian
dollar and the U.S. dollar will be disadvantageous to us.
Risk Factors relating to the offering.
1. We have no underwriter for our offering and cannot guarantee how
much, if any, of the offering will be sold.
The common shares are being offered by us on a best efforts basis by our
officers and directors. We have not retained an underwriter to assist
in offering the common shares. Our officers and directors plan to sell
this offering. Our officers and directors have limited experience in
the offer and sale of securities on behalf of an issuer. As a result,
they may be unable to sell any of the common shares.
2. There is no minimum offering amount or a formal escrow account.
There is no minimum offering amount. All of the proceeds will be
deposited directly into our operating account. We have not set up an
escrow account, trust account or made other similar arrangements.
3. The initial price of $1.50 may have little or no relationship to
the market price.
The offering price of the common shares has been arbitrarily determined
without regard to the book value or market value of our securities. The
initial prices may have little no relationship to the market price.
Active trading markets generally result in lower price volatility and
more efficient execution of buy and sell orders for investors.
4. Our securities will be a "penny stock" under the federal securities
regulation. The special rules applicable to the sale of penny stocks may
make our stock less liquid and harder for investors to buy and sell our
shares.
Under the rulesmeaning of the Securities Act in connection therewith. In such event, any commissions received by such broker-dealers or agents and Exchange Commission, our
securities will come withinany profit on the definitionresale of a "penny stock" because
the price of our securities is below $5.00 per share. As a result, our
securities willshares purchased by them may be subject to the "penny stock" rules and regulations,
13
if a market ever develops. Broker-dealers who sell penny stocks to
certain types of investors are required to comply with the Commission's
regulations concerning the transfer of penny stock. These regulations
require broker-dealers to:
- Make a suitability determination prior to selling penny stock to
the purchaser,
- Receive the purchaser's written consent to the transaction; and
- Provide certain written disclosures to the purchaser.
These requirements may restrict the ability of broker/dealers to sell
our securities, and may affect the ability to resell our securities. An
investment in our securities is not likelydeemed to be very liquid, and
becauseunderwriting commissions or discounts under the Securities Act. For more information, please see the section of the additional requirements, many brokers do not participate
in penny stock transactions. As a result, you may have a harder time
buying or selling our shares.
FORWARD LOOKING STATEMENTS
The statements contained in this prospectus that are not historical fact
are forward-looking statements which can be identified by the usetitled “Plan of forward-looking terminology such as "believes," "expects," "may,"
"should," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. We have made the forward-looking
statements with management's best estimates prepared in good faith.
Because of the number and range of the assumptions underlying our
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond our
reasonable control, some of the assumptions inevitably will not
materialize and unanticipated events and circumstances may occur
subsequent to the date of this prospectus.
These forward-looking statements are basedDistribution” beginning on current expectations, and
we will not update this information other than required by law.
Therefore, the actual experience of US Highland, and results achieved
during the period covered by any particular projections and other
forward-looking statements should not be regarded as a representation by
US Highland, or any other person, that we will realize these estimates
and projections, and actual results may vary materially. We cannot
assure you that any of these expectations will be realized or that any
of the forward-looking statements contained herein will prove to be
accurate.
14
USE OF PROCEEDS
If the entire offering amount is reached, US Highland shall receive
gross proceeds of $2,820,131. Based on US Highland's present plans,
which represent the existing and anticipated business conditions, US
Highland intends to apply the estimated net proceeds of the offering
over the next twelve months as follows:
Gross proceeds $ 2,820,131 $ 1,410,065
Offering expenses 58,491 58,491
----------- -----------
Net proceeds $ 2,761,640 $ 1,351,574
Purchase of tooling and equipment 1,500,000 785,000
Building/property improvements 250,000 100,000
Working Capital 1,011,640 466,574
----------- -----------
Net proceeds expended $ 2,761,640 $ 1,351,574
Gross proceeds $ 705,033 $ 352,516
Offering expenses 58,491 58,491
----------- -----------
Net proceeds $ 646,542 $ 294,025
Purchase of tooling and equipment 342,500 153,000
Building improvements 50,000 100,000
Working Capital 254,042 41,025
----------- -----------
Net proceeds expended $ 646,542 $ 294,025
Working capital will include but are not limited to:
- Production lines, including manufacturing equipment and tooling
- Inventory
- Business development costs
- Professional services
Additionally, our uses of funds for general corporate purposes are,
including but not limited to sales and marketing expense, income taxes,
interest expense, commissions, administrative expenses, and capital
expenditures.
The foregoing use of proceeds is a good faith estimate and is not
conclusive. If the board of directors of US Highland deems it necessary
and in US Highland's best interest to modify the use of the proceeds at
a later time, it will do so.
page 13.
We will not receive any proceeds from the resale of securities by
selling security holders.
15
DILUTION
The common shares being sold in this offering will be reissued from
treasury shares. Assuming completion of the offering, there will still
be 21,462,500 common shares outstanding. The following table
illustrates the per common share dilution that may be experienced by
investors at various funding levels.
Funding Level $2,805,131 $1,395,065 $690,033 $337,516
---------- ---------- -------- --------
Offering price $1.50 $1.50 $1.50 $1.50
Net tangible book
value per common
share before offering .92 .92 .92 .92
Increase per common
share attributable to
investors .13 .06 .03 .02
----- ----- ----- -----
Pro forma net tangible
book value per
common share after
offering 1.05 .98 .95 .94
----- ----- ----- ------
Dilution to investors .45 .52 .55 .56
Dilution as a
percentage of
offering price 30% 35% 37% 37%
Based on 21,462,500 common shares outstanding as of March 31, 2010 and
total stockholder's equity of $19,781,321 utilizing unaudited March 31,
2010 financial statements.
Further Dilution
- ----------------
US Highland may issue equity and debt securities in the future. These
issuances and any sales of additional common shares may have a
depressive effect upon the market price of the registrant's common
shares and investors in this offering.
PLAN OF DISTRIBUTION AND SELLING SECURITY HOLDERS
This prospectus relates to the sale of 1,880,087 common shares and the
resale of 609,913 common sharesCommon Stock by the selling security holders. The
1,880,087 common shares will be reissued from treasury shares.stockholders. We will, sell the common shares ourselves and do not plan to use
underwriters or pay any commissions. We will be selling our common
shares using our best efforts and no one has agreed to buy any of our
common shares. This prospectus permits our officers and directors to
sell the common shares directly to the public, with no commission or
other remuneration payable to them for any common shares they may sell.
16
There is no plan or arrangement to enter into any contracts or
agreements to sell the common shares with a broker or dealer. Our
officers and directors will sell the common shares and intend to offer
them to friends, family members and business acquaintances. There is no
minimum amount of common shares we must sell so no money raisedhowever, receive proceeds from the sale of shares directly to L2 Capital pursuant to the Equity Line and may receive proceeds from the cash exercise of the Warrants to purchase shares of our common shares will go into escrow, trust or another similar
arrangement.
The offering will commencestock.
Our common stock is quoted on the effective dateOTC Marketplace operated by the OTC Markets Group, Inc., or “OTC,” under the ticker symbol “UHLN.” On September 5, 2018, the average of the high and low sales prices of our common stock was $0.105 per share, adjusted to reflect the assumed 1-for-100 reverse stock split of our common stock, which will be effected prior to the effectiveness of this prospectus and
will terminateregistration statement.
Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on or before June 30, 2011, unless extended by us for an
additional 90 days.
The common shares are being offered by Mats Malmberg, an officer and
directorpage 3 of the registrant. Mr. Malmberg will be relying on the safe
harbor in Rule 3a4-1 of the Securities Exchange Act of 1934 to sell the
common shares. No sales commission will be paid for common shares sold
by Mr. Malmberg. Mr. Malmberg is not subject to a statutory
disqualification and is not an associated person of a broker or dealer.
Additionally, Mr. Malmberg primarily performs substantial duties on
behalf of the registrant otherwise than in connection with transactions
in securities. Mr. Malmberg has not been a broker or dealer or an
associated person of a broker or dealer within the preceding 12 months
and he has not participated in selling an offering of securities for any
issuer more than once every 12 months other than in reliance on
paragraph (a)4(i) or (a)4(iii) of Rule 3a4-1 of the Securities Exchange
Act of 1934.
There are no finders.
Under the rules ofthis prospectus.
Neither the Securities and Exchange Commission our common
stock will come withinnor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the definitioncontrary is a criminal offense.
The date of a penny stock because the price
of our common stockthis prospectus is , 2018.
_______________________________
You should rely only on the OTC Bulletin Board is below $5.00 per share.
As a result, our common stock willinformation contained in this prospectus or in any free writing prospectus we may authorize to be subjectdelivered or made available to the penny stock rules
and regulations. Broker-dealers who sell penny stocksyou. We have not authorized anyone to certain types
of investorsprovide you with different information. We are required to comply with the Commission's regulations
concerning the transfer of penny stock. These regulations require
broker-dealers to:
- Make a suitability determination prior to selling penny stock to
the purchaser;
- Receive the purchaser's written consent to the transaction; and
- Provide certain written disclosures to the purchaser.
These requirements may restrict the ability of broker/dealersoffering to sell, our common stock, and may affect the ability to resell our common stock.
The selling security holders may sell their common shares at prevailing
market prices or privately negotiated prices.
If the selling security holders engage in short selling activities, they
must comply with the prospectus delivery requirements of Section 5(b)(2)
of the Securities Act.
17
Pursuant to Regulation M of the Securities Act, the selling security
holders will not, directly or indirectly, bid for, purchase, or attempt
to induce any person to bid for or purchase their common shares during
the offering except forseeking offers to sell or the solicitation of offers to
buy, and unsolicited purchases that are not effected from or through a
broker or dealer, on a securities exchange or through an inter-dealer
quotation system or electronic communications network.
The table below sets forth information with respect to the resale of shares of common stock byonly in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the selling security holders. Wedate of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, financial condition, operating results and prospects may have changed since that date.
Cruzani, Inc., the Cruzani logo, and other trademarks or service marks of Cruzani, Inc. appearing in this prospectus are the property of Cruzani, Inc. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this prospectus appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not receive any proceeds fromassert, to the resale of common stock byfullest extent under applicable law, our rights, or that the selling
security holders for shares currently outstanding.
US Highland shall register, pursuantapplicable owner will not assert its rights, to these trademarks and tradenames.
i |
The following summary highlights information contained elsewhere in this prospectus 609,913 common
shares currently outstanding for the account of 10 individuals or
entities. The percentage owned prior to and after the offering assumes
the sale ofdoes not contain all of the information that you should consider in making your investment decision in our common shares being registered on behalf ofstock. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the selling security holders.
# of Shares Total Shares Total Shares %
Being Before After After
Registered Offering Offering Offering
----------- ------------ ------------ --------
Baurus Co. Limited(1) 85,000 85,000 0 0%
Ingemar Brorsson 167,170 1,338,895 1,171,725 5.46%
Iron Invest AB(2) 111,200 111,200 0 0%
Marcus Bjornsson 11,068 11,068 0 0%
Mikael Svenfelt 14,412 14,412 0 0%
Olof Svenfelt 111,200 111,200 0 0%
Richard Goglia 10,000 10,000 0 0%
Ullared Netto AB(3) 55,622 55,622 0 0%
WP Intressenter(4) 33,194 33,194 0 0%
Beslag & Metall(5) 11,047 11,047 0 0%
(1) An unaffiliated entity controlled by Bjorn Ohlsen. The entity is
neither a registered broker-dealer nor an affiliate of registered
broker-dealers.
(2) An affiliated entity controlled by Mats Malmberg, an officerrelated notes included in this prospectus and a
director of the registrant. The entity is neither registered broker-
dealer nor an affiliate of registered broker-dealers.
(3) An unaffiliated entity controlled by Frank Gunnarsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(4) An unaffiliated entity controlled by Christer Wagenius. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(5) An unaffiliated entity controlled by Marcus Bjornsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
18
The 609,013 shares offered by the selling security holders may be sold
by one or more of the following methods, without limitation:
- ordinary brokerage transactions and transactions in which the
broker solicits purchases; and
- face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the
selling security holders may arrange for other brokers or dealers to
participate.
Brokers or dealers may receive commissions or discounts from the selling
security holders in amounts to be negotiated. Brokers and dealers and
any other participating brokers or dealers may be deemed to be
underwriters within the meaning of the Securities Act, in connection
with any sales.
The selling security holder or dealer effecting a transaction in the
registered securities, whether or not participating in a distribution,
is required to deliver a prospectus.
As a result of these shares being registeredinformation set forth under the Securities Act,
selling security holders who subsequently resell the shares to the
public themselves may be deemed to be underwriters with respect to the
sharesheadings “Risk Factors” and “Management’s Discussion and Analysis of common stock for purposesFinancial Condition and Results of the Securities Act with the
result that they may be subject to statutory liabilities if the
registration statement to whichOperations.” As used in this prospectus, relatesunless the context otherwise requires, references to “we,” “us,” “our,” “Company,” “Cruzani” refer to Cruzani, Inc., together with its subsidiaries.
Our Business
Cruzani, Inc. is defective by
virtue of containing a material misstatement or omitting to disclose a
statement of material fact. We have agreed to indemnifyfranchise development company that builds and represents popular franchise concepts, and other related businesses, throughout the selling
security holders regarding such liability.
Under the Securities Act of 1933, the selling security holders will be
considered to be underwriters of the offering. The selling security
holders may have civil liability under Section 11 and 12 of the
Securities Act for any omissions or misstatements in the registration
statement because of their statusUnited States as underwriters. We may be sued by
selling security holders if omissions or misstatements result in civil
liability to them.
BUSINESS OPERATIONS
Corporate History
- -----------------
US Highland,well as international markets. Cruzani, 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 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 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.
19
On January 25, 2010, Articles of Merger were filed with the state of
Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into
Harcom Productions, Inc. Pursuant to the Articles of Merger, the name
of the corporation was changed from Harcom Productions, Inc. to US
Highland, Inc.
Prior Operations
- ----------------
Prior to January 25, 2010, the registrant offered professional
consulting in Music-on-Hold and messaging services as well some
equipment sales and consultation services for commercial clients.
Subsequent to the merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intended to pursue its 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. The
950,000 common shares consisted of 468,750 common shares directly held
by Mr. Harwell, 468,750 common shares acquired by Mr. Harwell from Susan
Harwell, his wife and 12,500 common shares acquired by Mr. Harwell from
Charles Harwell, his father for nominal amounts.
Current Corporate Operations
- ----------------------------
US Highland recently acquired its manufacturing equipment and tooling
from and is currently gearing up to manufacture its products in Mounds,
Oklahoma which is adjacent to Tulsa, Oklahoma. US Highland requires the
services of many manufacturing subcontractors, as is typical for the
industry. The registrant has just consolidated to larger facilities.
US Highland's business development strategy includes:
- Multinational Business Model. US Highland will manufacture in
the United States. In house product development engineering and
contract engineering will continue primarily in Sweden.
- Acquisitions. As funds allow, US Highland intends
1) to ramp up to much higher production levels,
2) to launch marketing in the US and Europe, and
3) to fund strategic acquisitions to offer enhanced share value for US
Highland shareholders.
- Road Shows. US Highland will utilize road shows to promote its
stock, brand, and products.
- Media Promotions. US Highland will fully employ both traditional
and marketing venues to advertise, promote, and drive US Highland brand
awareness utilizing the following:
- Internet promotions
- Trade shows and events, including the Indianapolis Dealer Expo
and others
- Trade publication advertisements
- Trade publication editorials and product reviews
20
- Trade and Business Wire press releases
- Marketing collateral
- US Highland Pro Race Team. US Highland will attract media
attention with the US Highland Pro Race Team at high profile race
events.
- Dealer Network Building and Mass Customization. US Highland will
market direct to qualified high end dealers to build and develop the US
Highland dealer network.
- OEM Deals. US Highland will develop license and other OEM deals
and use co-branding and co-marketing activities to further its business
development objectives.
Products
- --------
US Highland products include single and twin cylinder engines,
motorcycles and All Terrain Vehicles.
Single and Twin Cylinder Engines
US Highland has two powerful engine platforms, including its single
cylinder 250-550cc engines and its two cylinder, V-twin 750-1150cc
engines. These engines were developed and refined in US Highland's
active race program. US Highland proprietary power plants are
lightweight, high horsepower, and fuel injected. US Highland engines
also use the proprietary and patent pending US Highland throttle body,
which delivers smooth, linearly proportional throttle response unlike
conventional systems that deliver uneven throttle response.
Motorcycle and Quad Product Line
The new US Highland product line is composed of the following vehicles,
not all of which will be released in the next model year. These
vehicles are based on the US Highland 250-550cc and 750-1150cc 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 of various sizes
Patents, Trademarks, Intellectual Property, and Proprietary Protection
- ----------------------------------------------------------------------
US Highland has developed a patent pending throttle body which allows
linear proportional air flow control to the engine. Conventional
throttle bodies do not have linear response, requiring operators to
mentally adjust to uneven response from the throttle.
21
The Market, Sales, and Business Development
- -------------------------------------------
US Highland Target Markets
US Highland will target the dual market, off-road and on-road motorcycle
markets with its initial market entry fully capitalizing on its current
product offering. These market segments are to be reached through
qualified dealerships.
US Highland has plans to sell to the All Terrain Vehicle and possibly
Utility Vehicle markets in the future with new products currently in
development.
Industry Analysis
Market data for the motorcycle industry shows that the industry is down
in most market segments, illustrating generally poor expected
performance of the powersports industry during 2009.
It is important to note that 45% for on-road motorcycles plus 10.5% for
off-road motorcycles show motorcycles clearly to be the largest market
segment.
Japanese manufacturers collectively dominate powersports market share,
with Honda as the largest OEM, followed by Yahama and Kawasaki. The US
has long been the greatest consumer and promoter of the powersports
industry.
US Highland has chosen the US market as its primary target and domicile
market as to take advantage of an increasing US-centric legislation, tax
incentive and purchasing sentiment.
Off-Road Seasonality
The off-road motorcycle market is a seasonal business, with the largest
sales occurring during spring. Sales during the winter months are
approximately 50% of peak sales.
The seasonality of the off-road business has traditionally resulted in
stocking orders for next year products in the months of August or
September; however, current economic conditions are likely to delay and
spread out these orders in 2009-2010.
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.
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.
22
Dual Sport Market
2009 data indicates a drop in this segment. US Highland motorcycles are
dual purpose ready.
Scooter Market
Industry data indicates that scooters are becoming a more important
segment each year. This was especially true when gas prices increased
in the United States. US Highland has an ongoing scooter development
project.
ATV Market
US Highland has developed an ATV (quad) product line, not yet ready for
release. The ATV market segment is a large market segment and
management believes that this will continue to be the case in 2010-11.
Motorcycle Dealer Analysis
JD Powers & Associates Surveys from 2008 and 2009 indicate that the
largest challenge that faced the dealers in 2009 was lack of financing
for inventory flooring and for consumer purchases, pointing to a
significant opportunity for those OEMs capable of either offering
financing or facilitating financing for dealers and/or consumers. This
situation is likely to remain the same or even worsen in 2010.
To match this broadly evidenced market need, US Highland may offer
through its dealer network special financing facilities designed to
enable qualifying customers the opportunity to ride US Highland. These
programs will be marketed and promoted with specific dealer training
focused on helping them create sales through their established customer
base.
Pricing Analysis
As indicated in the above section, purchasing is largely dependant on
consumer ability to acquire financing or credit. Off-road and Dual-
sport unit pricing range significantly from the low end Chinese import
disposable market to primary global brands. Off-brand bikes receive
little to no credit program support while the large brands offer factory
and dealer backed financing. Prices for vehicles range from $12,000 to
$75,000. The high end prices represents limited addition products.
Sales
US Highland targets premium, high performance motorcycles and ATVs.
Sales through established dealer networks are critical to any power
sports company success. US Highland has established relationships with
dealerships nationwide. A survey of dealer interests and constraints was
conducted. From this survey, it is clear that dealers are laboring with
three primary concerns:
1. Record Level Inventories
2. Flooring Costs
3. Reduced Credit Facilities
US Highland has established a sales model designed specifically to
directly answer the concerns of the current market and facilitate sales
to our top tier customers.
23
Business Development
- --------------------
Relationships with Other OEMs
US Highland and its executives have long history with other powersports
OEMs. As a technology provider, US Highland is often perceived to be a
supplier rather than a competitor to other OEMs.
Acquisition Opportunities
- -------------------------
Management believes there are currently a number of struggling OEMs have
been caught in the global economic downturn and have not been able to
react quickly enough to changing conditions. With the right mergers and
acquisitions strategy, one or more of these OEMs could add valuable
resources and substantial revenues and profits to US Highland.
Nonperforming assets from acquisitions could be sold off or
restructured.
Multi-National Locations
- -------------------
Jonkoping, Sweden
Highland Group AB is located in Jonkoping, Sweden (pronounced JEN-sher-
ping). Sweden is well known for its premium powersports and automotive
companies, including Husaberg, Husqvarna, Volvo, Saab, and many others.
As a result, Sweden has many resources for these high technology and
manufacturing intensive businesses, including substantial government and
university support, and many world renowned designers and engineers.
Sweden has a number of significant disadvantages as a manufacturing
center. These disadvantages include:
- Inadequate as a central location for procurement of components and
subassemblies for manufacturing
- Inadequate as a central location for distribution to the world
markets, especially to the United States (increases shipping costs
and lead times)
- High labor costs
- Lengthy, mandatory national vacations
On the other hand, management is of the opinion that Sweden is an
excellent location for ongoing development and engineering activities:
- Sweden has several readily accessible government programs for
automotive and similar developers
- Sweden is home to a number of world renowned powersports designers
and racers
- Sweden is 'off the map' making it ideal to test new designs
without the watchful eyes of competitors
- Sweden has private capital market investment options that
facilitate and support new product development
24
Tulsa, Oklahoma
US Highland's professional race team has been managed near Tulsa,
Oklahoma for the past two years. US Highland has recently strategically
relocated the manufacturing and distribution portions of the business to
Tulsa, retaining product development and engineering activities in
Sweden.
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
- --------------
US Highland uses subcontractors for tool and die work, casting, various
complex machining operations, plastic injection molding, 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.
Final Assembly and Quality Assurance
- ------------------------------------
Final assembly and quality assurance are overseen by US Highland's
technicians. These technicians have many years of cumulative
experience. Many of these technicians have experience in the
professional race environment.
25
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.
Facilities
The registrant's principle executive offices are located at 17424 South
Union, Mounds, OK 74047. The registrant's primary phone number is 918-
827-5254. Current manufacturing operations include 18,000 square feet
for general manufacturing, CNC machining, and final assembly, 5,000
square feet for welding, painting, and machining operations, and 10,000
square feet for administration. These premises are on a lease purchase
at $8,500 per month until December 31, 2010. The registrant intends to
purchase the facility at that time.
Reports to Security Holders
We are a fully reporting company under the requirements of the Exchange
Act, and to date we have filed the necessary quarterly and other reports
with the Securities and Exchange Commission. Although we are not
required to deliver our annual or quarterly reports to security holders,
we would be pleased to forward this information to security holders upon
receiving a written request to receive such information. The reports
and other information filed by us will be available for inspection and
copying at the public reference facilities of the Securities and
Exchange Commission located at 100 F Street, N.E., Washington, D.C.
20549.
Copies of such material may be obtained by mail from the Public
Reference Section of the Securities and Exchange Commission at 100 F
Street, N.E., Washington, D.C. 20549, at prescribed rates. Information
on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. In addition, the Commission maintains a
World Wide Website on the Internet at: http://www.sec.gov that contains
reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and
Exchange Commission.
DIVIDEND POLICY
We have never declared or paid any dividends. In addition, we
anticipate that we will not declare dividends at any time in the
foreseeable future.
Instead, we will retain any earnings for use in our business. This
policy will be reviewed by our board of directors from time to time in
light of, among other things, our earnings and financial position.
26
DETERMINATION OF OFFERING PRICE
The offering price of the common shares was arbitrarily determined by US
Highland without regard to the book value or market value, if any, of
our common shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Overview
- -------
On January 25, 2010, Articles of Merger were filed with the state of
Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into
Harcom Productions, Inc. Pursuant to the Articles of Merger, the name
of the corporation was changed from Harcom Productions, Inc. to US
Highland, Inc.
Prior to the January 25, 2010, we offered professional consulting in
Music-on-Hold and messaging services as well some equipment sales and
consultation services for commercial clients.
Subsequent to the merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intends to pursue its 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. The
950,000 common shares consisted of 468,750 common shares directly held
by Mr. Harwell, 468,750 common shares acquired by Mr. Harwell from Susan
Harwell, his wife and 12,500 common shares acquired by Mr. Harwell from
Charles Harwell, his father for nominal amounts.
Our principal sources of liquidity are existing cash, cash generated by
our operations, and our ability to borrow cash or obtain equity
investment when needed from a number of related parties.
Our principal uses of liquidity are funding growth opportunities and
paying the costs and expenses associated with our operations.
The registrant experienced significant growth in assets during the first
quarter of 2010, in a combination of components inventory, finished
goods inventory, and intellectual property.
In April 2010, the registrant received approximately $762,404 in a
private offering, substantially increasing the registrant's cash
reserves.
Effective May 31, 2010, Lemon Tree Financial Group, LLC, an entity
controlled by Chase Bales, an officer and director of the registrant,
entered into an agreement with the registrant. Pursuant to the
agreement, Lemon Tree tendered 2,000,000 common shares of the registrant
in exchange for the rights to three of the registrant's regional
dealerships valued at $200,000 each and the repayment of debt owed by
27
Lemon Tree to the registrant of $284,000. The 2,000,000 common shares
were returned to the treasury of the registrant and a portion of the
common shares will be reissued to the investors in this offering.
Results of Operations
- ---------------------
During the first quarter of 2010, the registrant used $1,736,342 of cash
equivalent, including various acquisitions of assets in partial cash and
partial stock transactions, in operating activities.
In the opinion of management, it is not useful to provide an analysis or
comparison of the results of prior years as the registrant has
materially changed its business plan and operations from prior years to
recreational powersports from operations unrelated to recreational
powersports, resulting in entirely new financial performance
characteristics. The registrant's first quarter revenues are much
better than management expectations, primarily derived from engineering
development and business development activities. The registrant will
continue to develop revenue from similar activities and plans on
supplementing engineering development and business development revenues
with revenues from manufacturing operations later this year.
Results of Operations for the three months ended March 31, 2010
Revenues:
During this quarter the registrant has total revenues of $655,497,
including approximately $256,000 in engineering development and $400,000
from business development activities.
Historically through its roots with the Swedish company the Highland
Group AB, the registrant has generated substantial revenues from
engineering development and business development activities. These
activities are likely to continue to remain a significant source of
revenues for the registrant, in addition to revenues generated from
manufacturing and sales of the registrant's motorcycles, quads, and
engines, planned for formal production startup later this year after the
production ramp up is complete.
Cost of Goods Sold:
Cost of goods sold for the period was $181,426. As the registrant
completes its production ramp activities and commences selling its
manufactured products, cost of goods sold are projected to increase
substantially, primarily proportionately to revenues from manufacturing
operations.
Net Income:
Net income for the period is $196,939, which is higher than expected for
the period. The registrant expects to generate most of its 2010
revenues near year end after production startup.
Operating Expenses:
Operating expenses for the period total $242,322. Operating expenses
are anticipated to increase at a much slower rate than cost of goods
sold proportional to revenues from manufacturing operations.
28
Comparison of Balance Sheet for March 31, 2010 and December 31, 2009 as
it pertains to Capital and Liquidity.
Cash and Equivalents:
At the end of the period, the registrant had $54,777 in cash;
however, immediately after the period ended the registrant received
$762,404 in cash from the sale of restricted stock in a private
offering. The registrant also has approximately $5.8 million in
inventory.
Accounts Receivable:
The registrant has total receivables of $370,561.
Total Current Liabilities:
The registrant has total current liabilities of $296,846.
Guarantees by officers and directors:
The credit of the officers and directors for guaranteeing any loan
necessary is extremely strong. The registrant has not established any
lines of credit with any banks. In the event a supplier or lender
requires additional credit to obtain small equipment or other business
supplies, our officers and directors are willing to extend their credit
to accomplish the purchase.
Off-balance sheet arrangements
- -----------------------------
The registrant has no such arrangements.
Recent Pronouncements
- --------------------
Management does not anticipate that the new accounting pronouncements
disclosed in the financial statements of the registrant will have a
material impact on the registrant.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
Our executive officers and directors and their business experience
follows:
Name and Age Position Term
Bengt Andersson, 65 Chairman January 2010 to present
Mats Malmberg, 41 President January 2010 to present
Managing Director
Steven Moel, 66 CEO January 2010 to present
Chase Bales, 51 COO / January 2010 to present
Director
Damian Riddoch, 37 CFO January 2010 to present
29
Resumes of Board of Directors and Officers
Mr. Bengt Andersson - Chairman
- ------------------------------
From 2002 to 2008, Mr. Bengt Andersson was the President and CEO of
Husqvarna AB, a multi-national publicly traded conglomerate producing
premium products including utility vehicles, tractors, chainsaws, lawn
mowers, pressure washers, and much more. During his tenure at
Husqvarna, Mr. Andersson oversaw the implementation of such venerable
motorcycles as the 610 four stroke and an international race-winning
platform. Mr. Andersson earned a bachelor's degree in meccanical
engineering in Sweden in 1965.
Mr. Mats Malmberg - Managing Director and President
- ---------------------------------------------------
Mr. Mats Malmberg is the original founder of Highland Group AB in Sweden
and the primary creator of the Highland brand in 1996. Mr. Malmberg is
a former pro racer. Mr. Malmberg is experienced in business
development, new product development, and operations. Mr. Malmberg
completed a three year degree program in business, large machinery and
forestry through Ostboskolan in 1990. He also completed a program in
business, general contract and project management through Ostboskolan in
1995.
Dr. Steven A. Moel - Chief Executive Officer
- --------------------------------------------
Mr. Steven Moel, MD, JD, and experienced public company CEO, has
diversified experience in operations, business development, and mergers
and acquisitions in a variety of industries. Dr. Moel has experience in
managing growth from inception to mid cap. Dr. Moel brings to US
Highland experience and expertise in corporate management of emerging
growth public companies. He also offers public company experience in a
wide breadth of enterprise, and his direct management experiences
include daily operations, manufacturing, marketing, financial, mergers,
and acquisitions, technology development, and board of director
oversight.
Dr. Moel is in private practice as a transactional attorney and is a
member of the California and American Bar Associations and the American
Inns of Court. He also serves as counsel to many corporations. Dr.
Moel is currently
- senior business advisor of DPEC Partners, an entity engaged in
- Biotech
- Hotels
- International Real Estate Development
- Agriculture, and
- Winery;
- vice-president, business development and mergers and acquisitions
of Virgilian, LLC, an entity engaged in nutraceuticals and the
agricultural industries;
- senior business advisor and vice-president, finance, of viaMarket
Consumer Products, LLC, a manufacturer of consumer products); and
- advisory board member of Mahlia Collection, a jewelry designer
and manufacturer.
30
Dr. Moel received a bachelor of arts degree in psychology from the
University of Miami in 1965 and a doctor of medicine degree from West
Virginia University Medical School in 1970. Dr. Moel completed his
residency in ophthalmology at Louisiana State University from 1972-
1975. Dr. Moel received a juris doctor degree from Santa Barbara
College of Law in 2004.
Mr. Chase Bales ? Chief Operating Officer
- -----------------------------------------
Mr. Bales is currently the Chief Operating Officer and a member of the
board of directors and the executive committee of US Highland, Inc. Mr.
Bales has been an officer and director of the company since May 2009.
Mr. Bales has been a director of Highland Group AB since July 2009.
From 1994 to present, Mr. Bales has been the president of Lemon Tree
Financial Group, a financial services entity. Over the past five years,
Mr. Bales has held various board or advisory positions in Mind Over
Matter, an engineering development company, Millennial Europe Greentech,
Wind and Solar Elements, LLC, Dynamic Solutions Research, Inc., and ATK,
a powersports OEM. Mr. Bales attended the University of Maryland from
1978-1979 taking extension services for studies abroad. Mr. Bales
attended business and communications courses at Clackamas College from
1980-1981. From 1981-1983, Mr. Bales attended classes in business and
computer science at the University of Montana. From 1991-1994, Mr.
Bales studied abroad.
Mr. Damian Riddoch ? Chief Financial Officer
- --------------------------------------------
Mr. Riddoch currently holds positions at US Highland, Inc. and
Millennial Research Corporation. Mr. Riddoch has been CFO of US
Highland since December of 2009 and was Director of Operations
previously (since May of 2009). At Millennial Research Corporation Mr.
Riddoch has been a member of the executive committee and a director
since August of 2008 and additionally the CFO of that company since
January 2010. From 2006 to 2008, Mr. Riddoch worked for Revv Automotive
AG, a powersports product development company, as a director and member
of the executive team. Mr. Riddoch was an independent management
consultant from 2003 to 2005. Prior to 2002 (starting in 1999), Mr.
Riddoch was a multi-department manager (process simulation, estimating,
and maintenance) and engineering product manager for GSC Foundries, an
aerospace investment casting and CNC machining provider. Mr. Riddoch's
education includes a Master of Business Administration Degree (full time
program) from the University of Oxford (2003), a Master of Mechanical
Engineering Degree (2002), in addition to his undergraduate work, which
includes a Bachelor of Science Degree in Manufacturing Engineering from
Brigham Young University (1996) and an Associate of Science Degree in
Chemical Engineering from Ricks College (1991).
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
an officer, director, or greater-than-10% shareholder of the registrant
must file a Form 4 reporting the acquisition or disposition of
registrant's equity securities with the Securities and Exchange
31
Commission no later than the end of the second business day after the
day the transaction occurred unless certain exceptions apply.
Transactions not reported on Form 4 must be reported on Form 5 within 45
days after the end of the registrant's fiscal year. Such persons must
also file initial reports of ownership on Form 3 upon becoming an
officer, director, or greater-than-10% shareholder. To our knowledge,
based solely on a review of the copies of these reports furnished to it,
the officers, directors, and greater than 10% beneficial owners complied
with all applicable Section 16(a) filing requirements during 2009.
Code of Ethics Policy
We have adopted a code of ethics as of November 11, 2006 that applies to
our principal executive officer, principal financial officer and
principal accounting officer as well as our employees. Our standards
are in writing. Our complete Code of Ethics has been incorporated by
reference to Exhibit 14 of the Company's report on Form SB-2 which was
filed with the SEC on December 26, 2006. A copy of our code of ethics
is available to any person without charge, upon request. Requests can
be made by sending a self-addressed stamped envelope to the registrant.
The following is a summation of the key points of the Code of Ethics we
adopted:
- Honest and ethical conduct, including ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely, and understandable disclosure reports
and documents that a small business issuer files with, or submits to,
the Commission and in other public communications made by our company;
- Full compliance with applicable government laws, rules and
regulations;
- The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
- Accountability for adherence to the code.
Corporate Governance
There have been no changes in any state law or other procedures by which
security holders may recommend nominees to our board of directors. In
addition to having no nominating committee for this purpose, we
currently have no specific audit committee and no audit committee
financial expert. Based on the fact that our current business affairs
are simple, any such committees are excessive and beyond the scope of
our business and needs.
Audit Committee
We do not have an audit committee that is comprised of any independent
director. As a company with less than $1,000,000 in revenue we rely on
our chief financial officer for our audit committee financial expert as
defined in Item 407(d)(5) of Regulation S-K promulgated under the
Securities Act. Our Board of Directors acts as our audit committee. The
board has determined that the relationship of Damian Riddoch as both our
32
CFO and our audit committee financial expert is not detrimental to the
registrant. Mr. Riddoch has a complete understanding of GAAP and
financial statements; the ability to assess the general application of
such principles in connection with the accounting for estimates,
accruals and reserves in a fair and impartial manner; has experience
analyzing or evaluating financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable
to or exceed the breadth and complexity of issues that can reasonably be
expected to be raised by the small business issuer's financial
statements; an understanding of internal control over financial
reporting; and an understanding of audit committee functions. Mr.
Riddoch has gained this expertise through his formal education and
experience as our CFO and as CFO of another company. He has specific
experience coordinating the financials of the registrant with public
accountants with respect to the preparation, auditing or evaluation of
the company's financial statements.
Indemnification
The registrant shall indemnify to the fullest extent permitted by, and
in the manner permissible under the laws of the State of Oklahoma, any
person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he is or was a director or officer of the
registrant, or served any other enterprise as director, officer or
employee at the request of the registrant. The board of directors, in
its discretion, shall have the power on behalf of the registrant to
indemnify any person, other than a director or officer, made a party to
any action, suit or proceeding by reason of the fact that he/she is or
was an employee of the registrant.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) is asserted by
such director, officer, or controlling person in connection with any
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE REGISTRANT FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
33
Family Relationships
There are no family relationships between our officers and directors.
Involvement in Certain Legal Proceedings
None of our directors, executive officers and control persons has been
involved in any of the following events during the past five years:
- Any bankruptcy petition filed by or 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 conviction in a criminal proceeding or being subject to any
pending criminal proceeding (excluding traffic violations and other
minor offenses);
- Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his or her involvement in any type of business, securities or
banking activities,; or
- Being found by a court of 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.
Executive Compensation
The following table sets forth information concerning the annual and
long-term compensation of the former chief executive officer, and the
most highly compensated employees and/or executive officers who served
at the end of the fiscal years December 31, 2008 and 2009, and whose
salary and bonus exceeded $100,000 for the fiscal years ended December
31, 2008 and 2009, for services rendered in all capacities to us.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Other Securities All
Name Annual Restricted Underlying LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus sation Awards SARs Outs sation
Position Year ($) ($) ($) ($) (#) ($) ($)
Shane Harwell 2009 - - - - - - -
CEO 2008 - - - - - - -
Susan Harwell 2009 - - - - - - -
CFO 2008 - - - - - - -
Director Compensation
The registrant does not compensate its directors for their services as
such. The registrant reimburses the directors for their reasonable out-
of pocket expenses for attending meetings of the board of directors.
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tabulates holdings of shares of the registrant by each
person who, subject to the above, holds of record or is known by
management to own beneficially more than 5.0% of the common shares and,
in addition, by all directors and officers of the registrant
individually and as a group. Each named beneficial owner has sole
voting and investment power with respect to the shares set forth
opposite his name.
The common shareholdings as of June 15, 2010 are shown below:
Number of
Name and Address Common Shares Percentage
- ---------------- ------------- ----------
Mats Malmberg 3,735,983 17.4%
Bjork Angen Hulu
Nassjo, Jonkoping
Sweden
Lemon Tree Financial Group, LLC(1) 624,375 2.91%
610 West Needles
Bixby, OK 74008
Chase Bales 2,114,341 9.9%
862 E. 171st Street
Glenpool, OK 74008
Boris Claesson 1,311,421 6.1%
Isberga Sateri
SMALANDSSTENAR 333 91
Sweden
Ingemar Brorsson 1,338,895 6.3%
Sallstorp 1
ULLARED 310 60
Sweden
Malfors Promote 1,529,364 7.1%
PL 16, Skarpoborg
Vaxholm SE 185 91
Sweden
Bengt Andersson 244,713 1.1%
Salita delle Ginestre
6900 Lugano
Switzerland
Steven Moel 50,000 .23%
167 Vista del mar Drive
Santa Barbara, CA 93109
Damian Riddoch 0 0.0%
6629 E. 116th Street South
Bixby, OK 74008
35
(1)Lemon Tree is an entity controlled by Chase Bales. As a result, Mr.
Bales would be deemed a beneficial owner of the 624,375 common shares
held by Lemon Tree.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From 2004-2009, the registrant's former general manager had advanced
funds to the registrant to purchase materials expensed as costs of goods
sold as well as to occasionally meet payroll obligations. These loans
were made through the use of the former general manager's personal
credit cards and personal loans. As such, the amount of interest
accrued is dictated by the interest rate agreed to through the formal
general manager's credit agreement. For the years ended December 31,
2009 and 2008, the net effect of unpaid advances were $164,070 and
$192,808 respectively.
On December 21, 2009, the registrant entered into a Transfer and
Assumption of Liabilities Agreement with Shane Harwell, a then officer
and director of the registrant. Pursuant to the Agreement, Harwell
agreed to assume all of the liabilities of the registrant at the time of
Closing. In consideration of the transfer and assumption of liabilities
to Harwell, the registrant issued a convertible debenture with the
principal amount of $225,000 with no interest. The convertible
debenture is convertible into common shares of the registrant at a
conversion price equal to 65% of the 28 day trading average prior to
conversion. The convertible debenture matures on December 21, 2010.
The registrant has the right, with seven (7) business days advance
written notice, to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date.
In contemplation of a merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intended to pursue its current
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. The 950,000 common shares consisted of 468,750 common shares
directly held by Mr. Harwell, 468,750 common shares acquired by Mr.
Harwell from Susan Harwell, his wife and 12,500 common shares acquired
by Mr. Harwell from Charles Harwell, his father for nominal amounts.
Effective May 31, 2010, Lemon Tree Financial Group, LLC, an entity
controlled by Chase Bales, an officer and director of the registrant,
entered into an agreement with the registrant. Pursuant to the
agreement, Lemon Tree tendered 2,000,000 common shares of the registrant
in exchange for the rights to three of the registrant's regional
dealerships valued at $200,000 each and the repayment of debt owed by
Lemon Tree to the registrant of $284,000. The 2,000,000 common shares
were returned to the treasury of the registrant and a portion of the
common shares will be reissued to the investors in this offering.
36
On May 31, 2010, Lemon Tree gifted 250,000 common shares to Jack P.
Larrabee, II and 250,000 common shares to KTM Capital, LLC, an entity
controlled by James Holland, a non-affiliate.
Director Independence
None of the registrant's board of directors are independent as such term
is defined by a national securities exchange or an inter-dealer quotation
system.
DESCRIPTION OF CAPITAL STOCK
The following statements constitute brief summaries of US Highland
certificate of incorporation and bylaws, as amended.
Common Shares. US Highland articles of incorporation authorize it to
issue up to 100,000,000 common shares, $0.01 par value per common share.
On January 21, 2010, US Highland approved a 7 to 1 forward split on the
common shares.
Liquidation Rights. Upon liquidation or dissolution, each outstanding
common share will be entitled to share equally in the assets of US
Highland legally available for distribution to shareholders after the
payment of all debts and other liabilities.
Dividend Rights. There are no limitations or restrictions upon the
rights of the board of directors to declare dividends out of any funds
legally available therefore. US Highland has not paid dividends to date
and it is not anticipated that any dividends will be paid in the
foreseeable future. The board of directors initially may follow a
policy of retaining earnings, if any, to finance the future growth of US
Highland. Accordingly, future dividends, if any, will depend upon,
among other considerations, US Highland need for working capital and its
financial conditions at the time.
Voting Rights. Holders of common shares of US Highland are entitled to
voting rights of one hundred percent. Holders may cast one vote for
each share held at all shareholders meetings for all purposes.
Other Rights. Common shares are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or
purchase additional common shares. Common Shares do not have cumulative
voting features. Our bylaws allow action to be taken by written consent
rather than at a meeting of stockholders with the consent of the holders
of a majority of shares entitled to vote.
Transfer Agent. Columbia Stock Transfer Company acts as US Highland
transfer agent.
37
SHARES ELIGIBLE FOR FUTURE SALE
Upon the date of this prospectus, there are 21,462,500 shares of our
common stock outstanding of which 5,019,000 common shares may be freely
traded without restriction.
The common shares being sold in this offering will be reissued from
outstanding treasury common shares. Upon the effectiveness of this
registration statement up to 1,880,087 common shares may be issued and
will be eligible for immediate resale in the public market. The
remaining common shares will be restricted within the meaning of Rule
144 under the Securities Act, and are subject to the resale provisions
of Rule 144.
At the present time, resales or distributions of such shares are
provided for by the provisions of Rule 144. That rule is a so-called
"safe harbor" rule which, if complied with, should eliminate any
questions as to whether or not a person selling restricted shares has
acted as an underwriter.
At the present time, resales or distributions of such shares are
provided for by the provisions of Rule 144. That rule is a so-called
"safe harbor" rule which, if complied with, should eliminate any
questions as to whether or not a person selling restricted shares has
acted as an underwriter.
Rule 144(d)(1) states that if the issuer of the securities is, and has
been for a period of at least 90 days immediately before the sale,
subject to the reporting requirements of section 13 or 15(d) of the
Exchange Act, a minimum of six months must elapse between the later of
the date of the acquisition of the securities from the issuer, or from
an affiliate of the issuer, and any resale of such securities.
Sales under Rule 144 are also subject to notice and manner of sale
requirements and to the availability of current public information and
must be made in unsolicited brokers' transactions or to a market maker.
A person who is not an affiliate of US Highland under the Securities Act
during the three months preceding a sale and who has beneficially owned
such shares for at least six months is entitled to sell the shares under
Rule 144 without regard to the volume, notice, information and manner of
sale provisions. Affiliates must comply with the restrictions and
requirements of Rule 144 when transferring restricted shares even after
the six month holding period has expired and must comply with the
restrictions and requirements of Rule 144 in order to sell unrestricted
shares.
No predictions can be made of the effect, if any, that market sales of
shares of common stock or the availability of such shares for sale will
have on the market price prevailing from time to time. Nevertheless,
sales of significant amounts of our common stock could adversely affect
the prevailing market price of the common stock, as well as impair our
ability to raise capital through the issuance of additional equity
securities.
38
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the small business issuer as provided in the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Item 5(a)
a) Market Information. On March 17, 2008, our common stock was listed
for the first time on the OTC Bulletin Board under the symbol HRCM.
On March 31, 2010, due to our name change, our symbol was changed to
UHLN.
The following table sets forth the range of high and low bid quotations
for the registrant's common stock. The quotations represent inter-
dealer prices without retail markup, markdown or commission, and may not
necessarily represent actual transactions.
Quarter Ended High Bid Low Bid
3/31/08 none none
6/30/08 .55 .55
9/30/08 .25 .18
12/31/08 .18 .18
3/31/09 .05 .02
6/30/09 .80 .02
9/30/09 .79 .79
12/31/09 .79 .79
3/31/10 4.00 .79
39
b) Holders. At June 15, 2010, there were approximately 60
shareholders of the registrant.
c) Dividends. Holders of the registrant's common stock are
entitled to receive such dividends as may be declared by its board
of directors. No dividends on the registrant's common stock have
ever been paid, and the registrant does not anticipate that
dividends will be paid on its common stock in the foreseeable
future.
d) Securities authorized for issuance under equity compensation
plans. No securities are authorized for issuance by the
registrant under equity compensation plans.
e) Performance graph. Not applicable.
f) Sale of unregistered securities. The registrant sold 609,913
common shares during April and May of 2010 in which the registrant
received approximately $774,915 in paid in capital from the sale
of common restricted stock at approximately $1.25 per share in a
private offering.
Name Amount Paid Shares Date
- ---- ----------- ------ ----
Richard Goglia $ 12,500 10,000 4/12/10
Baurus Co. Limited(1) $106,250 85,000 4/10/10
Ingemar Brorsson $208,962.24 167,170 4/16/10
Iron Invest AB(2) $139,000 111,200 4/16/10
Marcus Bjornsson $ 13,835 11,068 4/19/10
Mikael Svenfelt $ 18,039 14,431 4/15/10
Olof Svenfelt $139,000 111,200 4/29/10
Richard Goglia $ 12,500 10,000 4/13/10
Ullared Netto AB(3) $ 69,526.67 55,622 4/16/10
WP Intressenter(4) $ 41,493.07 33,194 4/26/10
Beslag & Metall(5) $ 13,809 11,047 4/14/10
(1) An unaffiliated entity controlled by Bjorn Ohlsen. The entity is
neither a registered broker-dealer nor an affiliate of registered
broker-dealers.
(2) An affiliated entity controlled by Mats Malmberg, an officer and a
director of the registrant. The entity is neither registered broker-
dealer nor an affiliate of registered broker-dealers.
(3) An unaffiliated entity controlled by Frank Gunnarsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(4) An unaffiliated entity controlled by Christer Wagenius. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(5) An unaffiliated entity controlled by Marcus Bjornsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
40
On May 31, 2010, Lemon Tree, an entity controlled by Chase Bales, an
officer and director of the registrant gifted 250,000 common shares to
Jack P. Larrabee, II and 250,000 common shares to KTM Capital, LLC, an
entity controlled by James Holland, a non-affiliate.
Item 5(b) Use of Proceeds. Not applicable.
Item 5(c) Purchases of Equity Securities by the issuer and
affiliated purchasers. None.
EXPERTS
The financial statements of US Highland appearing in this registration
statement have been audited by Hood Sutton Robinson & Freeman CPAs,
P.C., independent registered public accounting firms and are included in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings the outcome of which, in the
opinion of our management, would have a material adverse effect on our
business, financial condition, or results of operation.
LEGAL MATTERS
The validity of the common shares being offered hereby will be passed
upon by Jody M. Walker, Attorney At Law, Centennial, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
At your request, we will provide you, without charge, a copy of any
document filed as exhibits in this prospectus. If you want more
information, write or call us at:
US Highland, Inc.
17424 South Union Ave.
Mounds, OK 74047
918-827-5254
Attention: Damian Riddoch, Chief Financial Officer
Our fiscal year ends on December 31st. Upon completion of this
offering, we will become a reporting company and file annual, quarterly
and current reports with the SEC. You may read and copy any reports,
statements, or other information we file at the SEC's public reference
room at 100 F Street, Washington D.C. 20549. You can request copies of
these documents, upon payment of a duplicating fee by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our SEC filings are also
available to the public on the SEC Internet site at http:\\www.sec.gov.
41
US Highland, Inc.
formerly Harcom Productions, Inc.
Index to the Financial Statements
Balance Sheets as of March 31, 2010 (unaudited) and
December 31, 2009 (audited) 42
Unaudited Statements of Operations for the three months
Ended March 31, 2010 and March 31, 2009 44
Unaudited Statements of Cash Flows for the three months
Ended March 31, 2010 and March 31, 2009 45
Notes to Unaudited Financial Statements for the three months
Ended March 31, 2010 46
Report of Independent Registered Public Accounting Firm 54
Financial Statements of Harcom Productions, Inc.:
Balance Sheets as of December 31, 2009 and 2008 55
Statements of Operations For the Years
Ended December 31, 2009 and 2008 56
Statements of Stockholders' Equity (Deficit) For
the Years Ended December 31, 2009 and 2008 57
Statements of Cash Flows For the Years Ended
December 31, 2009 and 2008 58
Notes to Financial Statements 59
42
PART I
Item I - FINANCIAL STATEMENTS
US Highland, Inc.
Balance Sheets
March 31, 2010 and December 31, 2009
(Unaudited) (Audited)
3/31/10 12/31/09
--------- --------
Assets
Current Assets:
Cash $ 54,777 $ 392,766
Accounts Receivable 370,561 116,043
Inventory 5,842,381 4,254,582
----------- -----------
6,267,719 4,763,391
----------- -----------
Property and Equipment:
Vehicle 20,750 20,750
Furniture and Fixtures 66,483 43,297
Tooling 316,971 300,000
Production Equipment 4,806 -
Leasehold Improvements 42,299 -
Accumulated Depreciation (5,168) (5,168)
----------- -----------
446,141 358,879
----------- -----------
Other Assets:
Intellectual Property 13,000,000 -
Long-term Notes Receivable 230,000 -
Goodwill 164,820 143,820
Deposits 2,127 1,102
----------- -----------
13,396,947 144,922
----------- -----------
Total Assets $20,110,807 $ 5,267,192
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable 204,260 264,097
Current Portion of Long-Term Debt 8,400 8,400
Accrued Liabilities 84,186 2,754
----------- -----------
296,846 275,251
----------- -----------
43
Long-term Liabilities:
Notes Payable 32,654 34,707
Current Portion of Long-Term Debt (8,400) (8,400)
----------- -----------
24,254 26,307
Deferred Income Taxes 8,386 8,386
----------- -----------
32,640 34,693
Stockholders' Equity:
Common Stock, 100 million shares
authorized, par $0.01, 21,462,500
shares issued and outstanding 214,625 100,000
Paid in Capital 19,369,757 4,810,149
Retained Earnings 196,939 47,099
----------- -----------
Total Stockholders' Equity 19,781,321 4,957,248
----------- -----------
Total Liabilities and Stockholders'
Equity $20,110,807 $ 5,267,192
=========== ===========
The accompanying notes are an integral part
of the interim financial statements
44
US Highland, Inc.
Statements of Operations
For the Three Months Ended March 31, 2010 and March 31, 2009
(Unaudited) (Unaudited)
3/31/10 3/31/09
--------- ---------
Revenue:
Sales $ 655,497 $ 82,756
Cost of Goods Sold (181,426) (34,688)
--------- ---------
Gross Profit 474,071 48,068
--------- ---------
Operating Expenses:
General and Administrative 150,775 73,208
Racing - -
Research and Development - -
Selling 91,547 -
Depreciation - -
--------- ---------
Total Operating Expenses 242,322 73,208
--------- ---------
Operating Income 231,749 (25,140)
Other Income (Expense):
Interest Income 103 -
Interest Expense (580) (3,217)
--------- ---------
(477) (3,217)
--------- ---------
Income before Provision for
Income Taxes 231,272 (28,357)
Provision for Income Taxes 81,432 -
--------- ---------
Net Income 149,840 (28,357)
Retained Earnings, Beginning of Year 47,099 -
--------- ---------
Retained Earnings, End of Year $ 196,939 $ (28,357)
========= =========
Earnings Per Share, Average $ 0.01 $ (0.02)
========= =========
The accompanying notes are an integral part
of the interim financial statements
45
US Highland, Inc.
Statements of Cash Flows
For the Three Months Ended March 31, 2010 and March 31, 2009
(Unaudited) (Unaudited)
3/31/10 3/31/09
--------- ---------
Operating Activities
Net Income $ 229,802 $ (28,357)
Adjustments to reconcile Net Income
(Loss) to net cash
Accounts Receivables (253,918) 5,215
Amortization - 4,137
Leasehold Improvements (42,299) -
Office Equipment (1,686) -
Inventory Asset (1,187,799) -
RSGA Inventory (400,000) -
Equipment & Tooling (16,928) -
Rental & Utility Deposits (1,025) -
Accounts Payable (52,018) (2,419)
Escrow Account (8,500) -
Payroll Liabilities 81 -
Prepaid Expenses - (802)
Security Bank - Principal (2,053) -
----------- -----------
Net Cash Used Operating Activities (1,736,342) (22,226)
----------- -----------
Investing Activities - -
----------- -----------
Production Equipment (4,806) -
Furniture and Equipment (21,500) -
Long Term Notes: Highland Group AB (230,000) -
Goodwill (HARCOM) (21,000) -
Intellectual Property (13,000,000) -
----------- -----------
Net Cash Used by Investing Activities (13,277,306) -
Financing Activities
Proceeds from Related Party Loans - 22,164
Proceeds from Issuance of Common Stock 14,675,475 -
----------- -----------
Net cash provided by Financing Activities 14,675,475 22,164
----------- -----------
Net cash increase for period (338,173) (62)
Cash at beginning of period 392,951 8,337
----------- -----------
Cash at end of period $ 54,777 $ 8,275
=========== ===========
The accompanying notes are an integral part
of the interim financial statements
46
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
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 stateState of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc. US Highland, Inc. iswas a recreational powersports OEM,power sports Original Equipment Manufacturer (“OEM”), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. CashDuring 2017, the Company exited the recreational power sports OEM and Cash Equivalentsleisure activity vehicles markets.
On June 29, 2018, the Company filed Amended and Restated Articles of Incorporation with the State of Nevada to change its name to Cruzani, Inc. The name change is subject to approval by the Financial Industry Regulatory Authority (known as “FINRA”) to reflect the Company’s change of its business direction. Supreme Sweets Acquisition Corp., a subsidiary of the Company, was renamed Oventa, Inc. (“Oventa”). Oventa operates in a 39,000 sq. foot, commercial bakery located in Toronto, Ontario, Canada, which was established in March 2015 by Mario Parravano and Barbara Parravano (collectively, the “Founders”). The Founders have been a successful and innovative force in the baked goods industry since the early 1980’s. Oventa is operating and ideally situated in west-end Toronto at the junction of two major Toronto highways, fronting the Q.E.W. corridor, 10 minutes from downtown Toronto, and only 10 minutes from Pearson International Airport. Oventa’s high speed bread, pastry and donut lines, spiral and walk-in coolers and freezers, tunnel, revolving, and deck ovens, and equipment to produce virtually any bakery or snack product are in place and operational. There is considerable room to expand on the property. The current gross annual revenue for Oventa is approximately CAD $1 million. Oventa services local coffee shops and manufactures private label products for customers in Canada and the U.S.
Oventa will be the second, major operational focus of the Company. The acquisition of Oventa is in addition to the acquisition of TruFood Provisions Co., which is being rebranded and will launch in 2019.
Additionally, on September 7, 2018, the Company entered into a binding letter of intent (the “LOI”) with Recipe Food Co. (“RFC”) for the proposed acquisition by the Company of 80% of the shares of common stock of RFC on a fully-diluted basis (the “Acquisition”). The LOI may be terminated by, (i) written notice by the Company, (ii) execution of a definitive agreement, or (iii) by either party if the Acquisition has not been consummated by October 31, 2018. Pursuant to the LOI, the Company has delivered a non-refundable deposit in the amount of $50,000 to RFC and RFC has agreed, until the earlier of the closing of the Acquisition or termination of the LOI that it will not solicit, discuss, accept, approve, respond to or encourage any inquiries or proposals relating to, or engage in any negotiations with, any third party with respect to any transaction similar to the Acquisition or any transaction involving the transfer of a significant or controlling interest in the assets or capital stock of RFC, including, but not limited to, a merger, acquisition, strategic investment or similar transaction. The closing of the Acquisition is subject to the negotiation and execution of a definitive acquisition agreement, as well as to the completion of full legal and financial due diligence.
Our principal executive office is located at 3500 Lennox Road, Suite 1500, Atlanta, GA 30309. Our telephone number is (404) 419-2253 and our website is www.cruzani.com. Unless expressly noted, none of the information on our website is part of this prospectus or any prospectus supplement. Our common stock is quoted on the OTC Marketplace operated by the OTC Markets Group, Inc., or “OTC,” under the ticker symbol “UHLN.”
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OFFERING SUMMARY
Common stock that may be offered by selling stockholders | 3,176,381 shares (1) |
Common stock outstanding before this offering | 9,252,402 shares (1) |
Common stock to be outstanding after this offering | 12,428,783 shares (1)(2) |
Use of proceeds | We will not receive any proceeds from the resale or other disposition of the shares covered by this prospectus by the selling stockholders. We will receive proceeds from the sale of shares to L2 Capital. L2 Capital has committed to purchase up to $5,000,000 worth of shares of our common stock over a period of time terminating on the earlier of (i) the date on which L2 Capital shall have purchased shares under the Equity Purchase Agreement for an aggregate purchase price of $5,000,000, (ii) July 23, 2020, or (iii) written notice of termination by the Company to L2 Capital (which shall not occur at any time that L2 Capital holds any of the Put Shares). |
L2 Capital will pay a purchase price equal to 85% of the “Market Price,” which is defined as the lowest one (1) traded price of the common stock on the OTC Marketplace, as reported by Bloomberg Finance L.P., during the five consecutive trading days following the date on which the put shares are delivered to L2 Capital (the “Clearing Date”), or beginning on the Clearing Date if the respective Put Shares are received as DWAC Shares in L2 Capital’s brokerage account prior to 11:00 a.m. ET (the “Valuation Period”). In order to exercise the put, certain conditions must be met at each put notice date including, but not limited to: (i) we must have an effective registration statement, (ii) our common stock must be deposit/withdrawal at custodian (“DWAC”) eligible, (iii) the minimum price must exceed $0.0005, and (iv) the number of shares to be purchased by L2 Capital may not exceed the number of shares that, when added to the number of shares of our common stock then beneficially owned by L2 Capital, would exceed 9.99% of our shares of common stock outstanding. | |
For further information, see “The Offering” beginning on page 9. | |
Plan of Distribution | The selling stockholders may, from time to time, sell any or all of their shares of common stock on the stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. |
For further information, see “Plan of Distribution” beginning on page 13. | |
Risk factors | You should read the “Risk Factors” section of this prospectus and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
_______________
| (1) | Adjusted to reflect the assumed 1-for-100 reverse stock split of our common stock, which will be effected prior to the effectiveness of this registration statement. |
| (2) | Assumes the issuance of (i) 3,100,000 shares offered hereby that are issuable under our Equity Purchase Agreement with L2 Capital and (ii) the full exercise by L2 Capital of the 76,381 shares of common stock issuable upon exercise of the Warrants being registered hereunder. |
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Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks Related to Our Business
Our operating and financial results and growth strategies are closely tied to the success of our franchise concepts.
Substantially all of our operations are tied to our franchise concepts which makes us dependent on the financial success and cooperation of our franchise partners. If a significant franchise concept or a significant number of our franchise partners become financially distressed, our operating and financial results could be impacted through reduced or delayed revenues. Our success also depends on the willingness and ability of our franchise partners to implement major initiatives, which may include financial investment. Our franchise partners may be unable to successfully implement strategies that we believe are necessary for their further growth, which in turn may harm the growth prospects and financial condition of the company. Additionally, the failure of our franchise partners to focus on the fundamentals of restaurant operations or food production could have a negative impact on our business.
If we fail to identify, recruit and contract with a sufficient number of qualified franchise concepts, our ability to pursue and build new franchise concepts and increase our revenues could be materially adversely affected.
The opening of additional franchise concepts depends, in part, upon the availability of prospective concepts who meet our criteria. Our growth strategy requires us to identify, recruit and contract with a growing number of new franchise concepts. We may not be able to identify, recruit or contract with suitable franchises in our target markets on a timely basis or at all. If we are unable to recruit suitable concepts or if such suitable franchises are unable or unwilling to open new restaurants as planned, our growth may be slower than anticipated, which could materially adversely affect our ability to increase our revenues and materially adversely affect our business, financial condition and results of operations.
We may experience difficulties in integrating acquired businesses with our existing business.
The completed and pending acquisitions of TruFood and Oventa involve the integration of these brands and their related operations with our existing business and financial accounting and reporting systems. The difficulties of integration include:
● | coordinating and consolidating geographically separated systems and facilities; | |
● | integrating the management and personnel of the acquired brands, maintaining employee morale and retaining key employees; | |
● | implementing our management information systems and financial accounting and reporting systems; | |
● | establishing and maintaining effective internal control over financial reporting; and | |
● | implementing operational procedures and disciplines to control costs and increase profitability. |
The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of our business and that of our acquired franchise concepts, and the loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with the acquisition and the integration of the these operations could have an adverse effect on our business, results of operations and financial condition after the acquisition.
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Achieving the anticipated benefits of these acquisitions will depend in part upon whether we can integrate them in an efficient and effective manner. We may not accomplish this integration process smoothly or successfully. If management is unable to successfully integrate the acquired brands, the anticipated benefits of the acquisition may not be realized.
Our strategy includes pursuing opportunistic acquisitions of additional franchise concepts, and we may not find suitable acquisition candidates or successfully operate or integrate any brands that we may acquire.
As part of our strategy, we intend to opportunistically acquire new franchises and restaurant concepts. Although we believe that opportunities for future acquisitions may be available from time to time, competition for acquisition candidates may exist or increase in the future. Consequently, there may be fewer acquisition opportunities available to us as well as higher acquisition prices. There can be no assurance that we will be able to identify, acquire, manage or successfully integrate additional franchises or restaurant concepts without substantial costs, delays or operational or financial problems. In the event we are able to acquire additional franchises or restaurant concepts, the integration and operation of such acquisitions may place significant demands on our management, which could adversely affect our ability to manage our existing restaurant concepts. We may be required to obtain additional financing to fund future acquisitions. There can be no assurance that we will be able to obtain additional financing on acceptable terms or at all.
We may not achieve our target development goals and the addition of new franchise concepts may not be profitable.
Our growth strategy depends in part on our ability to add franchise concepts. The successful development and retention of new franchise concepts depends in large part on our ability to attract capital and the ability of our franchise concepts to operate these concepts profitably. We cannot guarantee that we or our current or future franchise partners will be able to achieve our expansion goals or that new concepts will be operated profitably. Further, there is no assurance that any new franchise concept will produce operating results similar to our expectations.
Failure to protect our service marks or other intellectual property could harm our business.
We regard our service marks and trademarks related to our franchise concepts, as having tangible value and being important to our marketing efforts. We rely on a combination of protections provided by contracts, copyrights, patents, trademarks, service marks and other common law rights, such as trade secret and unfair competition laws, to protect our franchise concepts and related businesses from infringement. Effective intellectual property protection may not be available in every country in which our franchise concepts operate or intend to operate. There can be no assurance that these protections will be adequate and defending or enforcing our service marks and other intellectual property could result in the expenditure of significant resources. We may also face claims of infringement that could interfere with the use of the proprietary knowhow, concepts, recipes, or trade secrets used in our businesses. Defending against such claims may be costly, and we may be prohibited from using such proprietary information in the future or forced to pay damages, royalties, or other fees for using such proprietary information, any of which could negatively affect our business, reputation, financial condition, and results of operations.
If our franchise concepts are unable to protect their customers’ credit card data and other personal information, our franchise concepts could be exposed to data loss, litigation, and liability, and our reputation could be significantly harmed.
Privacy protection is increasingly demanding, and the use of electronic payment methods and collection of other personal information expose our franchise concepts to increased risk of privacy and/or security breaches as well as other risks. The majority of our restaurant sales are by credit or debit cards. In connection with credit or debit card transactions in-restaurant, our franchise concepts collect and transmit confidential information by way of secure private retail networks. Additionally, our franchises collect and store personal information from individuals, including their customers and employees.
Although our franchises use secure private networks to transmit confidential information and debit card sales, our security measures and those of technology vendors may not effectively prohibit others from obtaining improper access to this information. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often difficult to detect for long periods of time, which may cause a breach to go undetected for an extensive period of time. Advances in computer and software capabilities, new tools, and other developments may increase the risk of such a breach. Further, the systems currently used for transmission and approval of electronic payment transactions, and the technology utilized in electronic payment themselves, all of which can put electronic payment at risk, are determined and controlled by the payment card industry, not by us. Our franchises must abide by the payment card industry standards, as modified from time to time, in order to accept electronic payment transactions.
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If a person is able to circumvent our franchises’ security measures or those of third parties, he or she could destroy or steal valuable information or disrupt our operations. Our franchises may become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and our franchises may also be subject to lawsuits or other proceedings relating to these types of incidents. Any such claim or proceeding could cause our franchises to incur significant unplanned expenses, which could have an adverse impact on our financial condition, results of operations and cash flows.
We and our franchise concepts rely on computer systems to process transactions and manage our business, and a disruption or a failure of such systems or technology could harm our ability to effectively manage our business.
Network and information technology systems are integral to our business. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could have a material adverse effect on our business and subject us to litigation or actions by regulatory authorities. Despite the implementation of protective measures, our systems are subject to damage and/or interruption as a result of power outages, computer and network failures, computer viruses and other disruptive software, security breaches, catastrophic events, and improper usage by employees. Such events could result in a material disruption in operations, a need for a costly repair, upgrade or replacement of systems, or a decrease in, or in the collection of, royalties and advertising fund contributions paid to us by our franchisees. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability which could materially affect our results of operations. It is also critical that we establish and maintain certain licensing and software agreements for the software we use in our day-to-day operations. A failure to procure or maintain these licenses could have a material adverse effect on our business operations.
The retail food industry in which we operate is highly competitive.
The retail food industry in which our franchise concepts operate is highly competitive with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. If consumer or dietary preferences change, if our marketing efforts are unsuccessful, or if our franchise concepts are unable to compete successfully with other retail food outlets in new and existing markets, our business could be adversely affected. We also face growing competition as a result of convergence in grocery, convenience, deli and restaurant services. Competition from delivery aggregators and other food delivery services has also increased in recent years, particularly in urbanized areas. Increased competition could have an adverse effect on our sales, profitability or development plans, which could harm our financial condition and operating results.
Shortages or interruptions in the availability and delivery of food and other supplies may increase costs or reduce revenues.
The food products sold by our franchises are sourced from a variety of domestic and international suppliers. We, along with our franchises, are also dependent upon third parties to make frequent deliveries of food products and supplies that meet our specifications at competitive prices. Shortages or interruptions in the supply of food items and other supplies to our franchises’ restaurants and customers could adversely affect the availability, quality and cost of items we use and the operations of our franchises’ restaurants. Such shortages or disruptions could be caused by inclement weather, natural disasters, increased demand, problems in production or distribution, restrictions on imports or exports, the inability of vendors to obtain credit, political instability in the countries in which suppliers and distributors are located, the financial instability of suppliers and distributors, suppliers’ or distributors’ failure to meet our standards, product quality issues, inflation, the price of gasoline, other factors relating to the suppliers and distributors and the countries in which they are located, food safety warnings or advisories or the prospect of such pronouncements, the cancellation of supply or distribution agreements or an inability to renew such arrangements or to find replacements on commercially reasonable terms, or other conditions beyond our control or the control of our franchisees.
An increase in food prices may have an adverse impact on our franchise concepts’ profit margins.
Our franchise concepts depend on reliable sources of large quantities of raw materials such as protein (including beef and poultry), cheese, oil, flour (for baked goods and other desserts) and vegetables (including potatoes and lettuce). Raw materials purchased for use in our franchises are subject to price volatility caused by any fluctuation in aggregate supply and demand, or other external conditions, such as weather conditions or natural events or disasters that affect expected harvests of such raw materials. As a result, the historical prices of raw materials used in the operation of our franchise concepts have fluctuated. We cannot assure you that our franchise concepts will continue to be able to purchase raw materials at reasonable prices, or that prices of raw materials will remain stable in the future.
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We depend on key executive management.
We depend on the leadership and experience of our relatively small number of key executive management personnel, and in particular key executive management, particularly our Chief Executive Officer, Everett M. Dickson. The loss of the services of any of our executive management members could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. We do not maintain key man life insurance policies on any of our executive officers. We believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in our industry. Our inability to meet our executive staffing requirements in the future could impair our growth and harm our business.
We could be party to litigation that could adversely affect us by increasing our expenses, diverting management attention or subjecting us to significant monetary damages and other remedies.
We may become involved in legal proceedings involving consumer, employment, real estate related, tort, intellectual property, breach of contract, securities, derivative and other litigation. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may not be accurately estimated. Regardless of whether any such claims have merit, or whether we are ultimately held liable or settle, such litigation may be expensive to defend and may divert resources and management attention away from our operations and negatively impact reported earnings. With respect to insured claims, a judgment for monetary damages in excess of any insurance coverage could adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also adversely affect our reputation, which in turn could adversely affect our results of operations.
In addition, the restaurant industry around the world has been subject to claims that relate to the nutritional content of food products, as well as claims that the menus and practices of franchise concepts have led to customer health issues, including weight gain and other adverse effects. These concerns could lead to an increase in the regulation of the content or marketing of our products. We may also be subject to such claims in the future and, even if we are not, publicity about these matters (particularly directed at the quick service and fast casual segments of the retail food industry) may harm our reputation and adversely affect our business, financial condition and results of operations.
Risks Related to Our Common Stock
Our common stock is thinly traded, and there is no guarantee of the prices at which the shares will trade.
Trading of our common stock is conducted on the OTC Marketplace operated by the OTC Markets Group, Inc., or “OTC,” under the ticker symbol “UHLN.” Not being listed for trading on an established securities exchange has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of the Company. This may result in lower prices for your common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. Historically, our common stock has been thinly traded, and there is no guarantee of the prices at which the shares will trade, or of the ability of stockholders to sell their shares without having an adverse effect on market prices.
We have never paid dividends on our common stock and we do not anticipate paying any dividends in the foreseeable future.
We have not paid dividends on our common stock to date, and we may not be in a position to pay dividends in the foreseeable future. Our ability to pay dividends depends on our ability to successfully develop our franchise concept business and generate revenue from future operations. Further, our initial earnings, if any, will likely be retained to finance our growth. Any future dividends will depend upon our earnings, our then-existing financial requirements and other factors and will be at the discretion of our Board of Directors.
Because our common stock is a “penny stock,” it may be difficult to sell shares of our common stock at times and prices that are acceptable.
Our common stock is a “penny stock.” Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser’s written agreement to the purchase. The penny stock rules may make it difficult for you to sell your shares of our common stock. Because of these rules, many brokers choose not to participate in penny stock transactions and there is less trading in penny stocks. Accordingly, you may not always be able to resell shares of our common stock publicly at times and prices that you feel are appropriate.
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In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our management concluded that our internal control over financial reporting was not effective as of June 30, 2018. Compliance with public company regulatory requirements, including those relating to our internal control over financial reporting, have and will likely continue to result in significant expenses and, if we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
As a public reporting company, we are subject to the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, as well as to the information and reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and other federal securities laws. As a result, we incur significant legal, accounting, and other expenses, including costs associated with our public company reporting requirements and corporate governance requirements. As an example of public reporting company requirements, we evaluate the effectiveness of disclosure controls and procedures and of our internal control over financing reporting in order to allow management to report on such controls.
Our management concluded that our internal control over financial reporting was not effective as of June 30, 2018 due 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.
If significant deficiencies or other material weaknesses are identified in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements and the trading price of our common stock and ability to obtain any necessary equity or debt financing could suffer. This would likely have an adverse effect on the trading price of our common stock and our ability to secure any necessary additional equity or debt financing.
Risks Relating to our Equity Line with L2 Capital
Resales of shares purchased by L2 Capital under the Equity Purchase Agreement may cause the market price of our common stock to decline.
Subject to the terms and conditions of the Equity Purchase Agreement, we have the right to “put,” or sell, up to $5,000,000 worth of shares of our common stock to L2 Capital. Unless terminated earlier, L2 Capital’s purchase commitment will automatically terminate on the earlier of (i) the date on which L2 Capital shall have purchased shares under the Equity Purchase Agreement for an aggregate purchase price of $5,000,000, (ii) July 23, 2020, or (iii) written notice of termination by the Company to L2 Capital (which shall not occur at any time that L2 Capital holds any of the Put Shares). This arrangement is also sometimes referred to herein as the “Equity Line.” The common stock to be issued to L2 Capital pursuant to the Equity Purchase Agreement will be purchased at a price equal to L2 Capital will pay a purchase price equal to 85% of the “Market Price,” which is defined as the lowest one (1) traded price of the common stock on the OTC Marketplace, as reported by Bloomberg Finance L.P., during the five consecutive trading days following the date on which the put shares are delivered to L2 Capital (the “Clearing Date”), or beginning on the Clearing Date if the respective Put Shares are received as DWAC Shares in L2 Capital’s brokerage account prior to 11:00 a.m. ET (the “Valuation Period”). L2 Capital will have the financial incentive to sell the shares of our common stock issuable under the Equity Purchase Agreement in advance of or upon receiving such shares and to realize the profit equal to the difference between the discounted price and the current market price of the shares. This may cause the market price of our common stock to decline.
The foregoing description of the terms of the Equity Purchase Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the Equity Purchase Agreement itself.
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Puts under Equity Purchase Agreement may cause dilution to existing stockholders.
From time to time during the term of the Equity Purchase Agreement, and at our sole discretion, we may present L2 Capital with a put notice requiring L2 Capital to purchase shares of our common stock. As a result, our existing stockholders will experience immediate dilution upon the purchase of any of the shares by L2 Capital. L2 Capital may resell some, if not all, of the shares that we issue to it under the Equity Purchase Agreement and such sales could cause the market price of our common stock to decline significantly. To the extent of any such decline, any subsequent puts would require us to issue and sell a greater number of shares to L2 Capital in exchange for each dollar of the put amount. Under these circumstances, the existing stockholders of our company will experience greater dilution. The effect of this dilution may, in turn, cause the price of our common stock to decrease further, both because of the downward pressure on the stock price that would be caused by a large number of sales of our shares into the public market by L2 Capital, and because our existing stockholders may disagree with a decision to sell shares to L2 Capital at a time when our stock price is low, and may in response decide to sell additional shares, further decreasing our stock price. If we draw down amounts under the Equity Line when our share price is decreasing, we will need to issue more shares to raise the same amount of funding.
There is no guarantee that we will satisfy the conditions to the Equity Purchase Agreement.
Although the Equity Purchase Agreement provides that we can require L2 Capital to purchase, at our discretion, up to $5,000,000 worth of shares of our common stock in the aggregate, our ability to put shares to L2 Capital and obtain funds when requested is limited by the terms and conditions of the Equity Purchase Agreement, including restrictions on when we may exercise our put rights, restrictions on the amount we may put to L2 Capital at any one time, which is determined in part by the trading volume of our common stock, and a limitation on our ability to put shares to L2 Capital to the extent that it would cause L2 Capital to beneficially own more than 9.99% of the outstanding shares of our common stock.
We may not have access to the full amount available under the Equity Purchase Agreement with L2 Capital.
Our ability to draw down funds and sell shares under the Equity Purchase Agreement requires that a registration statement be declared effective and continue to be effective registering the resale of shares issuable under the Equity Purchase Agreement. The registration statement of which this prospectus is a part registers the resale of 3,100,000 shares of our common stock issuable under the Equity Line. Our ability to sell any additional shares under the Equity Purchase Agreement will be contingent on our ability to prepare and file one or more additional registration statements registering the resale of such additional shares. These registration statements (and any post-effective amendments thereto) may be subject to review and comment by the staff of the Securities and Exchange Commission, and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these registration statements (and any post-effective amendments thereto) cannot be assured. Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the Equity Purchase Agreement to be declared effective by the Securities and Exchange Commission in a timely manner, we may not be able to sell the shares unless certain other conditions are met. For example, we might have to increase the number of our authorized shares in order to issue the shares to L2 Capital. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to draw down any amounts under the Equity Purchase Agreement with L2 Capital is subject to a number of conditions, there is no guarantee that we will be able to draw down all of the proceeds of $5,000,000 under the Equity Purchase Agreement.
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This prospectus may contain certain “forward-looking” statements as such term is defined by the Securities and Exchange Commission in its rules, regulations and releases, which represent the registrant’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the registrant’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing growth, the operations of the company, volatility of stock price, commercial viability of our business and any other factors discussed in this and other registrant filings with the Securities and Exchange Commission.
These risks and uncertainties and other factors include, but are not limited to those set forth under “Risk Factors” of this prospectus. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as otherwise required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this prospectus or in the documents we incorporate by reference, whether as a result of new information, future events, changed circumstances or any other reason after the date of this prospectus.
Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this prospectus, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.
These risks and uncertainties and other factors include, but are not limited to, those set forth under “Risk Factors.” All subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
We will not receive any proceeds from the sale of the common stock by the selling stockholders. However, we will receive proceeds from the sale of shares of our common stock to L2 Capital under the Equity Purchase Agreement.
Also, we may receive cash proceeds equal to the total exercise price of any Warrants to the extent that the Warrants are exercised. The exercise price and the number of shares of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances, including stock splits, dividends, distributions or reclassifications, and mergers, consolidations, statutory share exchanges, or other similar transactions. However, these Warrants contain a “cashless exercise” feature that allows the holders, under certain circumstances, to exercise the Warrants without making a cash payment to us. There can be no assurance any of these Warrants will be exercised by the Selling Stockholders at all or that these Warrants will be exercised for cash rather than pursuant to the “cashless exercise” feature.
We will use these proceeds for general corporate and working capital purposes, or for other purposes that our Board of Directors, in its good faith, deems to be in the best interest of our Company. We have agreed to bear the expenses relating to the registration of the offer and resale by the selling stockholders of the shares being offered hereby.
The selling stockholders may offer and resale of up to 3,176,381 shares of our common stock, par value $0.00001 per share, pursuant to this prospectus. The common stock offered consists of: (i) up to 3,100,000 shares of common stock (the “Common Stock”) and (ii) up to 76,381 shares of common stock issuable upon exercise of outstanding warrants (the “Warrants”).
The shares of Common Stock being registered represent shares that L2 Capital has agreed to purchase from us pursuant to the terms and conditions of an Equity Purchase Agreement we entered into with them on July 23, 2018 (the “Equity Purchase Agreement”), which are described below.
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Equity Purchase Agreement and Registration Rights Agreement with L2 Capital, LLC
Subject to the terms and conditions of the Equity Purchase Agreement, we have the right to “put,” or sell, up to $5,000,000 worth of shares of our common stock to L2 Capital. Unless terminated earlier, L2 Capital’s purchase commitment will automatically terminate on the earlier of (i) the date on which L2 Capital shall have purchased shares under the Equity Purchase Agreement for an aggregate purchase price of $5,000,000, (ii) July 23, 2020, or (iii) written notice of termination by the Company to L2 Capital (which shall not occur at any time that L2 Capital holds any of the Put Shares). We have no obligation to sell any shares under the Equity Purchase Agreement. This arrangement is also sometimes referred to herein as the “Equity Line.”
As provided in the Equity Purchase Agreement, we may require L2 Capital to purchase shares of common stock from time to time by delivering a put notice to L2 Capital specifying the total number of shares to be purchased (such number of shares multiplied by the purchase price described below, the “Investment Amount”); provided there must be a minimum of ten trading days between delivery of each put notice. We may determine the Investment Amount, provided that such amount may not be more than 100% of the average daily trading volume in dollar amount for our common stock during the ten (10) trading days immediately preceding the date on which we deliver the applicable put notice. Additionally, such amount may not be lower than $15,000 or higher than $1,000,000. L2 Capital will have no obligation to purchase shares under the Equity Line to the extent that such purchase would cause L2 Capital to own more than 9.99% of our common stock.
For each share of the our common stock purchased under the Equity Line, L2 Capital will pay a purchase price equal to 85% of the “Market Price,” which is defined as the lowest one (1) traded price of the common stock on the OTC Marketplace, as reported by Bloomberg Finance L.P., during the five consecutive trading days following the date on which the put shares are delivered to L2 Capital (the “Clearing Date”), or beginning on the Clearing Date if the respective Put Shares are received as DWAC Shares in L2 Capital’s brokerage account prior to 11:00 a.m. EST (the “Valuation Period”). On the settlement date, L2 Capital will purchase the applicable number of shares subject to customary closing conditions, including without limitation a requirement that a registration statement remain effective registering the resale by L2 Capital of the shares to be issued under the Equity Line as contemplated by the Registration Rights Agreement described below. The Equity Purchase Agreement is not transferable and any benefits attached thereto may not be assigned.
The Equity Purchase Agreement contains covenants, representations and warranties of us and L2 Capital that are typical for transactions of this type. In addition, we and L2 Capital have granted each other customary indemnification rights in connection with the Equity Purchase Agreement. The Equity Purchase Agreement may be terminated by us at any time.
In connection with the Equity Purchase Agreement, we also entered into Registration Rights Agreement with L2 Capital requiring us to prepare and file a registration statement registering the resale by L2 Capital of shares to be issued under the Equity Line, to use reasonable best efforts to cause such registration statement to become effective, and to keep such registration statement effective until the earlier of (i) the date as of which L2 Capital may sell all of the shares without restriction pursuant to Rule 144 promulgated under the Securities Act and (ii) the date on which L2 Capital shall have sold all the shares covered under the Equity Line. In accordance with the Registration Rights Agreement, we filed the registration statement of which this prospectus is a part registering the resale by L2 Capital of (i) up to 3,100,000 shares that may be issued and sold to L2 Capital under the Equity Line and (ii) up to 76,381 shares of common stock issuable upon exercise of outstanding warrants (the “Warrants”).
The 3,176,381 shares being offered pursuant to this prospectus by L2 Capital will represent approximately 25.6% of our shares of common stock issued and outstanding held by non-affiliates of our Company as of the date of this prospectus assuming the offering is fully subscribed.
The foregoing description of the terms of the Equity Purchase Agreement and Registration Rights Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the agreements and instruments themselves, copies of which are filed as Exhibits 10.10 and 4.8 to our Current Report on Form 8-K on August 6, 2018, and incorporated into this prospectus by reference. The benefits and representations and warranties set forth in such agreements and instruments are not intended to and do not constitute continuing representations and warranties of the Company or any other party to persons not a party thereto.
We intend to sell L2 Capital periodically our common stock under the Equity Purchase Agreement and L2 Capital may, in turn, sell such shares to investors in the market at the market price or at negotiated prices. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to L2 Capital to raise the intended amount of funds, as our stock price declines.
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Likelihood of Accessing the Full Amount of the Equity Line
Notwithstanding that the Equity Line is in an amount of $5,000,000, we anticipate that the actual likelihood that we will be able access the full amount of the Equity Line is low due to several factors, including that our ability to access the Equity Line is impacted by our average daily trading volume, which may limit the maximum dollar amount of each put we deliver to L2 Capital, and our stock price. Our use of the Equity Line will continue to be limited and restricted if our share trading volume or and market price of our stock continue at their current levels or decrease further in the future from the volume and stock prices reported over the past year. Further, if the price of our stock remains at $0.105 per share (which represents the average of the high and low reported sales prices of our common stock on September 11, 2018 adjusted to reflect the assumed 1-for-100 reverse stock split), the sale by L2 Capital of all 3,100,000 of the shares registered in this prospectus would mean we would receive only $341,000 from our sale of shares under the Equity Line. Our ability to issue shares in excess of the 3,100,000 shares covered by the registration statement of which this prospectus is a part will be subject to our filing a subsequent registration statement with the SEC and the SEC declaring it effective.
In addition, we may have to increase the number of our authorized shares in order to issue shares to L2 Capital in the future. Increasing the number of our authorized shares will require further board and stockholder approval. Accordingly, because our ability to deliver puts to L2 Capital under the Equity Purchase Agreement is subject to a number of conditions, there is no guarantee that we will receive all or any portion of the $5,000,000 that is available to us under the Equity Line.
Convertible Note and Warrant Financing
In May 2018, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Holder”) pursuant to which the Company issued and sold a promissory note to the Holder in the aggregate principal amount of up to $568,054.00 (the “Note”), which is convertible into shares of common stock of the Company, subject to the terms, conditions and limitations set forth in the Note.
The Note accrues interest at a rate of 8% per annum. The aggregate principal amount of up to $568,054.00 consists of a prorated original issuance discount of up to $55,554.00 and a $12,500 credit to Holder for transactional expenses with net consideration to the Company of up to $500,000 which will be funded in tranches. The maturity date of each tranche funded shall be six (6) months from the effective date of each payment and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees for each tranche, shall be due and payable. The Holder shall have the right at any time to convert all or any part of the funded portion of the Note into fully paid and non-assessable shares of common stock of the Company at the Conversion Price, which is equal to $0.01 per share (the “Fixed Conversion Price”), provided, however, that at any time on or after the occurrence of any Event of Default (as defined therein) under the Note, the Conversion Price shall mean the lesser of the (i) Fixed Conversion Price and (ii) 55% multiplied by the lowest VWAP of the common stock during the thirty (30) Trading Day (as defined therein) period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete Trading Day prior to the conversion date (each a “Conversion Date”) or (ii) the Conversion Date (subject to adjustment as provided in the Note).
In connection with the issuance of the Note and funding of the initial tranche of $50,000.00 on the Note, the Company also issued a common stock purchase warrant to the Holder to purchase up to 7,638,092 shares of the Company’s common stock pursuant to the terms therein (the “Holder Warrant”) as a commitment fee. At the time that each subsequent tranche under the Note is funded by the Holder in cash, then on such funding date, the warrant shares shall immediately and automatically be increased by the quotient of 100% of the face value of the respective tranche and 110% of the VWAP of the common stock on the Trading Day immediately prior to the funding date of the respective tranche. The Holder Warrant is exercisable for a period of five (5) years from date of issuance. The Holder Warrant includes a cashless net exercise provision whereby the Holder can elect to receive shares equal to the value of the Holder Warrant minus the fair market value of shares being surrendered to pay for the exercise.
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This prospectus relates to the offer and resale of up to 3,176,381 shares of our common stock, par value $0.00001 per share, by the selling stockholders identified on page 12. The common stock offered consists of: (i) up to 3,100,000 shares of common stock (the “Common Stock”) and (ii) up to 76,381 shares of common stock issuable upon exercise of outstanding warrants (the “Warrants”). The shares of Common Stock being registered hereunder represent shares that L2 Capital, LLC (“L2 Capital”) has agreed to purchase from us pursuant to the terms and conditions of an Equity Purchase Agreement we entered into with them on July 23, 2018 (the “Equity Purchase Agreement”).
L2 Capital is an “underwriter” within the meaning of the Securities Act in connection with its resale of our common stock pursuant to this prospectus. The selling stockholder has not had any position or office, or other material relationship with us or any of our affiliates over the past three years. The following table sets forth certain information regarding the beneficial ownership of shares of common stock by the selling stockholders as of September 14, 2018 and the number of shares of our common stock being offered pursuant to this prospectus.
Shares beneficially owned as of the Number of owned and percentage of beneficial Name of selling stockholder date of this prospectus (1) shares being offered Number of shares Percentage of class L2 Capital, LLC (3) Number of shares to be beneficially 467,053 3,176,381 467,053 4.99 %
_______________
* | Less than 1%. |
(1) | Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options and warrants currently exercisable, or exercisable within 60 days, are counted as outstanding for computing the percentage of the person holding such options or warrants but are not counted as outstanding for computing the percentage of any other person. |
(2) | The amount and percentage of shares of our common stock that will be beneficially owned by the selling stockholder after completion of the offering assume that they will sell all shares of our common stock being offered pursuant to this prospectus but will still hold the “Commitment Shares” (as defined below). |
(3) | L2 Capital is the beneficial owner of (i) 125,000 shares of Series D Convertible Preferred Stock (the “Commitment Shares”) which are convertible, at any time, at the election of Selling Stockholder into shares of common stock at $0.15 per share (assuming the effectiveness of the 1-for-100 reverse stock split), subject to a 4.99% beneficial ownership limitation and (ii) a common stock warrant to purchase up to 76,381 shares of common stock issuable upon exercise of outstanding warrants (the “Warrants”). Based on 9,252,402 shares of our common stock issued and outstanding as September 12, 2018 and after giving effect to the assumed 1-for-100 reverse stock split, L2 Capital is deemed to be the beneficial owner of 467,053 shares of common stock of the Company. All shares of our common stock being offered pursuant to this prospectus by the selling stockholder are counted as outstanding for computing the percentage beneficial ownership of such selling stockholder. |
Adam Long possesses voting and investment control over shares owned by L2 Capital. |
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The selling stockholders or their respective permitted transferees may, from time to time, sell any or all of shares of our common stock covered hereby on the OTC Marketplace operated by the OTC Markets Group, Inc., or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices. The selling stockholders may use any one or more of the following methods when selling securities:
· | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
· | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
· | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
· | an exchange distribution in accordance with the rules of the applicable exchange; |
· | privately negotiated transactions; |
· | in transactions through broker-dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated price per security; |
· | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
· | a combination of any such methods of sale; or |
· | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell securities under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, provided such amounts are in compliance with FINRA Rule 2121. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of common stock will be paid by the selling stockholders and/or the purchasers.
L2 Capital, LLC is an underwriter within the meaning of the Securities Act and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Because L2 Capital is an underwriter within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling security holders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.
Although L2 Capital has agreed not to enter into any “short sales” of our common stock, sales after delivery of a put notice of a number of shares reasonably expected to be purchased under a put notice shall not be deemed a “short sale.” Accordingly, L2 Capital may enter into arrangements it deems appropriate with respect to sales of shares of our common stock after it receives a put notice under the Equity Purchase Agreement so long as such sales or arrangements do not involve more than the number of put shares reasonably expected to be purchased by L2 Capital under such put notice.
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Capital Stock
Pursuant to our articles of incorporation, as amended to date, our authorized capital stock consists of one billion, five hundred fifteen million (1,515,000,000), of which one billion, five hundred million (1,500,000,000) shares shall be Common Stock (hereinafter referred to as the “Common Stock”) and fifteen million (15,000,000) shares shall be Preferred Stock (hereinafter referred to as the “Preferred Stock”). The Preferred Stock is currently designated into four series: Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock as follows:
| · | Series A Preferred Stock - 3,500,000 shares authorized of which 3,381,520 shares are outstanding | |
| · | Series B Preferred Stock - 10,000 shares authorized of which 5,000 shares are outstanding | |
| · | Series C Preferred Stock - 10,000,000 shares authorized of which 5,000,000 shares are outstanding | |
| · | Series D Preferred Stock - 125,000 shares authorized of which 125,000 shares are outstanding |
A description of the rights, preferences and terms of the Preferred Stock is set forth below.
The following description summarizes the material terms of our capital stock. This summary is, however, subject to the provisions of our articles of incorporation and bylaws. For greater detail about our capital stock, please refer to our articles of incorporation and bylaws.
Common Stock
As of September 12, 2018, there were 925,240,208 shares of common stock outstanding. It is expected that the Company will complete a 1-for-100 reverse stock split of our common stock during the fourth quarter of 2018. Assuming the effectiveness of such reverse stock split as of the date hereof, there are 9,252,402 shares of common stock outstanding. Our common stock is quoted on the OTC Marketplace operated by the OTC Markets Group, Inc., under the trading symbol “UHLN.”
Voting. Each share of Common Stock shall be entitled to one vote per share at each annual or special meeting of stockholders for the election of directors and upon any other matter coming before such meeting. Stockholders are not entitled to vote cumulatively for the election of directors.
Dividend Rights. Subject to all the rights of the Preferred Stock, dividends may be paid upon the Common Stock as and when declared by the Board of Directors out of any funds of the corporation legally available therefor.
Liquidation Rights. Upon any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, and after the holders of each series of the Preferred Stock shall have been paid in full, the amounts to which they respectively shall be entitled, the remaining assets of the corporation shall be distributed pro rata to the holders of the Common Stock.
Conversion, Redemption and Preemptive Rights. Holders of our common stock have no conversion, redemption, preemptive, subscription or similar rights.
The transfer agent and registrar for our common stock is Signature Stock Transfer, Inc., 14673 Midway Road, Suite 220 Addison, TX 75001; 972-612-4120.
Preferred Stock
Series A Preferred Stock
The following summary of the Company’s Series A Preferred Stock is merely a summary, we refer you to our Amended and Restated Articles of Incorporation, Series A Preferred Stock Designation, and the applicable provisions of the Nevada Revised Statutes for a more complete description of the rights and liabilities of holders of our securities.
Liquidation Rights
Except as otherwise provided by Nevada law or elsewhere in the certificate, in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of shares of the Series A Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, an amount equal to the Stated Value of $2.00 per share.
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Conversion
The “Conversion Ratio” per share of the Series A Preferred Stock shall be at a ratio of 1:10, meaning every (1) one Preferred A share shall convert into 10 shares of Common Stock of the Company. Holders of Class A Preferred Shares shall have the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule or regulation), to convert any or all their shares of the Class A Preferred Shares into Common Stock at the Conversion Ratio, subject to a 4.99% beneficial ownership limitation.
Voting
The Holder of each share of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Preferred Stock held by such holder; and, (b) by 10.
Misc. Rights
The shares of Series A Preferred Stock have the following additional rights, preferences and privileges:
| · | $0.50 stated value | |
| · | No reissuance upon conversion | |
| · | Rank – senior to all common and all subsequently created preferred (absent consent) | |
| · | No entitlement to dividends | |
| · | Not adjustable for stock splits. | |
| · | Protective Provisions: |
| · | So long as any shares of Series A are outstanding, the Company shall not, without first obtaining the approval of the holders of at least a majority of outstanding Series A: |
| · | Alter or change the rights, preferences or privileges of the Series A; | |
| · | Alter or change the rights, preferences or privileges of the Series A so as to adversely affect the Series A | |
| · | Create new class or series having preference over or pari passu with Series A | |
| · | Increase authorized Series A | |
| · | Issue additional senior securities | |
| · | Redeem, declare or pay dividends or distributions to junior securities |
Series B Preferred Stock
The following summary of the Company’s Series B Preferred Stock is merely a summary, we refer you to our Amended and Restated Articles of Incorporation, Series B Preferred Stock Designation, and the applicable provisions of the Nevada Revised Statutes for a more complete description of the rights and liabilities of holders of our securities.
Liquidation Rights
Except as otherwise provided by Nevada law or elsewhere in the certificate, in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of shares of the Series B Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, an amount equal to $0.01 per share.
Conversion
The “Conversion Ratio” per share of the Series B Preferred Stock shall be at a ratio of 1:4000, meaning every (1) one Preferred B share shall convert into 4,000 shares of Common Stock of the Company. Holders of Series B Preferred Shares shall have the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule or regulation), to convert any or all their shares of the Series B Preferred Shares into Common Stock at the Conversion Ratio, subject to a 4.99% beneficial ownership limitation.
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Voting
The Holder of each share of Series B Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series B Preferred Stock held by such holder; and, (b) by 4,000.
Misc. Rights
The shares of Series B Preferred Stock have the following additional rights, preferences and privileges:
| · | No reissuance upon conversion | |
| · | Rank – senior to all common and all subsequently created preferred (absent consent) | |
| · | No entitlement to dividends | |
| · | Not adjustable for stock splits. | |
| · | Protective Provisions: |
| · | So long as any shares of Series B are outstanding, the Company shall not, without first obtaining the approval of the holders of at least a majority of outstanding Series B: |
| · | Alter or change the rights, preferences or privileges of the Series B; | |
| · | Alter or change the rights, preferences or privileges of the Series B so as to adversely affect the Series B | |
| · | Create new class or series having preference over or pari passu with Series B | |
| · | Increase authorized Series B | |
| · | Issue additional senior securities | |
| · | Redeem, declare or pay dividends or distributions to junior securities |
Series C Preferred Stock
The following summary of the Company’s Series C Preferred Stock is merely a summary, we refer you to our Amended and Restated Articles of Incorporation, Series C Preferred Stock Designation, and the applicable provisions of the Nevada Revised Statutes for a more complete description of the rights and liabilities of holders of our securities.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation, subject to the prior preferences and other rights of any Senior Stock, but before any distribution or payment shall be made to the holders of Junior Stock, the holders of the Series C Preferred Stock shall be entitled to be paid the Series C Liquidation Price ($0.01) of all outstanding shares of Series C Preferred Stock, as of the date of such liquidation or dissolution or such other winding up, and no more, in cash or in property taken at its fair value as determined by the Board of Directors of the Corporation, or both, at the election of the Board of Directors. If payment shall have been made in full to the holders of any Senior Stock and Parity Stock of all amounts to which such holders shall be entitled, the remaining assets and funds of the Corporation shall be distributed among the holders of Junior Stock, according to their respective shares and priorities. If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the net assets of the Corporation distributable among the holders of all outstanding shares of the Series C Preferred Stock and of any Parity Stock shall be insufficient to permit the payment in full to such holders of the preferential amounts to which they are entitled, then the entire net assets of the Corporation remaining after the distributions to holders of any Senior Stock of the full amounts to which they may be entitled shall be distributed among the holders of the Series C Preferred Stock and of any Parity Stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled.
Conversion
The “Conversion Ratio” per share of the Series C Preferred Stock shall be at a ratio of 1:400, meaning every (1) one Preferred C share shall convert into 400 shares of Common Stock of the Company. Holders of Series C Preferred Shares shall have the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule or regulation), to convert any or all their shares of the Series C Preferred Shares into Common Stock at the Conversion Ratio, subject to a 4.99% beneficial ownership limitation.
Voting
The Holder of each share of Series C Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series C Preferred Stock held by such holder; and, (b) by 400.
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Dividend Preference
While the Series C Preferred Stock is outstanding, each holder of shares of Series C Preferred Stock shall receive four hundred (400) times the dividends declared and paid with respect to each share of Common Stock.
Misc. Rights
| · | No redemption | |
| · | No preemptive or subscription rights | |
| · | Reacquired shares may be redesignated and reissued |
Series D Preferred Stock
The following summary of the Company’s Series D Preferred Stock is merely a summary, we refer you to our Amended and Restated Articles of Incorporation, Series D Preferred Stock Designation, and the applicable provisions of the Nevada Revised Statutes for a more complete description of the rights and liabilities of holders of our securities.
Liquidation Rights
Upon any liquidation, dissolution or winding-down of the Company, whether voluntary or involuntary, the holders of Series D Preferred Stock shall be paid in cash, before any payment to common or junior stock, 140% of the Stated Value ($2.00) per share plus any dividends accrued but unpaid thereon. If, upon such liquidation, the assets are insufficient to permit payment in full to the holders of Series D, they shall share ratably in such distribution.
Conversion
The “Conversion Ratio” per share of the Series D Preferred Stock in connection with any Conversion shall be at a ratio of the Stated Value plus dividends accrued but unpaid divided by the fixed conversion price of $0.0015, which conversion price is subject to adjustment. The conversion of the Series D Preferred Stock is subject to 4.99% beneficial ownership limitation that can be waived up to 9.99% by the holder with not less than 61 days’ prior written notice to the Company.
Voting
The shares of Series D Preferred Stock are non-voting except as provided by law or in certain limited protective circumstances. In those circumstances, 66 2/3% of Series D holders must approve the corporate action.
Dividend Preference
The Series D Preferred Stock has 8% cumulative dividends.
Misc. Rights
| · | Issuance of common less than conversion price readjusted conversion price to that lower price | |
| · | Optional redemption by company in first 60 days after issuance at 125% premium on Stated Value plus dividends; becomes 140% after initial 60 day period |
| · | Optional redemption by holder at next financing by company of $1,000 or more in debt or equity at 140% |
| · | Reacquired shares may be redesignated and reissued | |
| · | Prohibition on debt and variable securities so long as Series D is out subject to certain exceptions. | |
| · | Certain penalties upon default |
Warrants
In May 2018, in connection with the purchase by an investor (the “Holder”) of a convertible promissory note, the Company issued a common stock purchase warrant to the Holder to purchase up to 7,638,092 shares of the Company’s common stock pursuant to the terms therein (the “Holder Warrant”) as a commitment fee. At the time that each subsequent tranche under the Note is funded by the Holder in cash, then on such funding date, the warrant shares shall immediately and automatically be increased by the quotient of 100% of the face value of the respective tranche and 110% of the VWAP of the common stock on the Trading Day immediately prior to the funding date of the respective tranche. The Holder Warrant is exercisable for a period of five (5) years from date of issuance. The Holder Warrant includes a cashless net exercise provision whereby the Holder can elect to receive shares equal to the value of the Holder Warrant minus the fair market value of shares being surrendered to pay for the exercise.
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Anti-Takeover Provisions
Some features of the Nevada Revised Statutes, which are further described below, may have the effect of deterring third parties from making takeover bids for control of our company or may be used to hinder or delay a takeover bid.
This would decrease the chance that our stockholders would realize a premium over market price for their shares of common stock as a result of a takeover bid.
Acquisition of Controlling Interest
The Nevada Revised Statutes contain provisions governing acquisition of controlling interest of a Nevada corporation. These provisions provide generally that any person or entity that acquires a certain percentage of the outstanding voting shares of a Nevada corporation may be denied voting rights with respect to the acquired shares, unless the holders of a majority of the voting power of the corporation, excluding shares as to which any of such acquiring person or entity, an officer or a director of the corporation, and an employee of the corporation exercises voting rights, elect to restore such voting rights in whole or in part. These provisions apply whenever a person or entity acquires shares that, but for the operation of these provisions, would bring voting power of such person or entity in the election of directors within any of the following three ranges:
· | 20% or more but less than 33-1/3%; |
· | 33-1/3% or more but less than or equal to 50%; or |
· | more than 50%. |
The stockholders or board of directors of a corporation may elect to exempt the stock of the corporation from these provisions through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from these provisions.
These provisions are applicable only to a Nevada corporation, which:
· | has 200 or more stockholders of record, at least 100 of whom have addresses in Nevada appearing on the stock ledger of the corporation; and |
· | does business in Nevada directly or through an affiliated corporation. |
At this time, we do not believe that these provisions apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply to us, these provisions may discourage companies or persons interested in acquiring a significant interest in or control of our company, regardless of whether such acquisition may be in the interest of our stockholders.
Combination with Interested Stockholder
The Nevada Revised Statutes contain provisions governing combination of a Nevada corporation that has 200 or more stockholders of record with an interested stockholder. As of December 31, 2017, we had 132 stockholders of record. Therefore, we believe that these provisions governing combination of a Nevada corporation may potentially apply to us in the future and may have the effect of delaying or making it more difficult to effect a change in control of our company.
A corporation affected by these provisions may not engage in a combination within three years after the interested stockholder acquires his, her or its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired such shares. Generally, if approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the board of directors before the person became an interested stockholder or a majority of the voting power held by disinterested stockholders, or if the consideration to be received per share by disinterested stockholders is at least equal to the highest of:
· | the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or within three years immediately before, or in, the transaction in which he, she or it became an interested stockholder, whichever is higher; |
· | the market value per share on the date of announcement of the combination or the date the person became an interested stockholder, whichever is higher; or |
· | if higher for the holders of preferred stock, the highest liquidation value of the preferred stock, if any. |
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Generally, these provisions define an interested stockholder as a person who is the beneficial owner, directly or indirectly of 10% or more of the voting power of the outstanding voting shares of a corporation. Generally, these provisions define combination to include any merger or consolidation with an interested stockholder, or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an interested stockholder of assets of the corporation having:
· | an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation; |
· | an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or |
· | representing 10% or more of the earning power or net income of the corporation. |
Articles of Incorporation and Bylaws
Our articles of incorporation contains provisions for “blank-check preferred stock” that may delay, defer or prevent a change in control of our company and that would operate only with respect to an extraordinary corporate transaction involving our company, such as merger, reorganization, tender offer, sale or transfer of substantially all of its assets, or liquidation.
The consolidated financial statements of Cruzani, Inc. as of and for the years ended December 31, 2017 and 2016, appearing in this prospectus and the registration statement of which it is a part, have been audited by Fruci & Associates II, PLLC, an independent registered public accounting firm, as set forth in their report dated March 30, 2018 (which contains an explanatory paragraph regarding the Company’s ability to continue as a going concern) appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
Lucosky Brookman LLP will provide us with an opinion on the validity of the shares of our common stock being offered pursuant to this prospectus.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert named in the registration statement of which this prospectus forms a part as having prepared or certified any part thereof (or is named as having prepared or certified a report or valuation for use in connection with such registration statement) or counsel named in this prospectus as having given an opinion upon the validity of the securities being offered pursuant to this prospectus or upon other legal matters in connection with the registration or offering such securities was employed for such purpose on a contingency basis. Also at the time of such preparation, certification or opinion or at any time thereafter, through the date of effectiveness of such registration statement or that part of such registration statement to which such preparation, certification or opinion relates, no such person had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in our company or any of its parents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.
Overview
Cruzani, Inc. (“Cruzani” or the “Company”) is a franchise development company that builds and represents popular franchise concepts, and other related businesses, throughout the United States as well as international markets. The Company considers highly liquid investments (those readily
convertiblewas originally formed as a limited liability company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to cash) purchased with original maturity dates of three
months or less to be cash equivalents.
Income Taxes
In 2007 The Company had completed its conversion to a C-Corporation
under the laws of the stateState of Oklahoma. Income taxes are providedOn 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. was a recreational power sports Original Equipment Manufacturer (“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.
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On March 8, 2018, the Company entered into a stock purchase agreement, pursuant to which the Company will acquire for approximately $75,000 in cash and warrants to acquire stock of the Company (the “Purchase Price”) all of the issued and outstanding shares of capital stock (collectively, the “Shares”) of TruFood Provisions Co., a Delaware corporation (“TruFood”), on the terms and subject to the conditions set forth in the stock purchase agreement. TruFood is engaged in the business of developing fast-casual restaurants, offering consumers a healthy diverse menu, made with fresh ingredients. The TruFood acquisition closed on March 28, 2018.
On June 29, 2018, the Company filed Amended and Restated Articles of Incorporation with the State of Nevada to change its name to Cruzani, Inc. The name change is subject to approval by the Financial Industry Regulatory Authority (known as “FINRA”).
On June 30, 2018, Supreme Sweets Acquisition Corp. (n/k/a Oventa, Inc.), a subsidiary of the Company, and the Company (collectively, the “Company”) entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Supreme Sweets Inc. and 2498411 Ontario, Inc., as sellers (collectively, the “Seller”), pursuant to which in exchange for CAD $200,000 and a twenty percent (20%) interest in Oventa, Inc., the Company agreed to acquire the trade secret assets of Seller upon the terms and subject to the conditions set forth in the Asset Purchase Agreement. A second closing occurred on July 31, 2018, pursuant to which the Company acquired the furniture, fixtures and equipment of Seller in exchange for CAD $100,000. Seller is engaged in the business of preparing delicious snacks, pastries and baked goods with high quality ingredients for exceptional taste, including low calorie and gluten-free alternatives.
As the driving force for the tax effectsCompany changing its name, the Company changed the composition of transactionsits business direction. Supreme Sweets Acquisition Corp., a subsidiary of the Company, was renamed Oventa, Inc. (“Oventa”). Oventa operates in a 39,000 sq. foot, commercial bakery located in Toronto, Ontario, Canada, which was established in March 2015 by Mario Parravano and Barbara Parravano (collectively, the “Founders”). The Founders have been a successful and innovative force in the baked goods industry since the early 1980’s. Oventa is operating and ideally situated in west-end Toronto at the junction of two major Toronto highways, fronting the Q.E.W. corridor, 10 minutes from downtown Toronto, and only 10 minutes from Pearson International Airport. Oventa’s high speed bread, pastry and donut lines, spiral and walk-in coolers and freezers, tunnel, revolving, and deck ovens, and equipment to produce virtually any bakery or snack product are in place and operational. There is considerable room to expand on the property. Oventa services local coffee shops and manufactures private label products for customers in Canada and the U.S.
Oventa will be the second, major operational focus of the Company. The acquisition of the assets of Supreme Sweets and the re-branding into Oventa is in addition to the acquisition of TruFood Provisions Co., which is also being rebranded and will launch in 2019.
Our Business
Cruzani, Inc. is a franchise development company that builds and represents popular franchise concepts, and other related businesses, throughout the United States as well as international markets, with an emphasis on food and wellness. Our Management team picks up and coming concepts with growth potential. With little territory available for the older brands we bring fresh innovative brands to our consumers that have great potential. All of our brands are unique in nature as we focus on niche markets that are still in need of developing.
The Cruzani Platform
Cruzani’s core value proposition relates to the platform of services it offers to potential food entrepreneurs. Cruzani’s goal is to propel those entrepreneurs to the next level of success. Cruzani focuses on the following areas:
Performance Appreciation
We have the skills and connections to ascertain hidden value for food entrepreneurs. Private companies can experience higher valuations in the public capital market. Potential franchise partners may have assets, skills and concepts that don’t appear on its balance sheet that make all the difference in the world to the savvy public market, where investors have vision. Cruzani aims to help the food entrepreneur discover the qualities that they take for granted – and capitalize them to achieve the next level of success that they deserve.
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Public Capital Market Experience
Navigating the public markets takes special knowledge, dedication and aptitude. Most private entrepreneurs could never make this leap by themselves. That’s were Cruzani comes in. If a potential food enterprise has the potential to satisfy customers and the investing public, both, then Cruzani has the ability to implement that plan. By being part of the Cruzani organization as a continuing co-venture partner or by divesting an entire enterprise to Cruzani, we have the goal of finding the right solution for our franchise partners.
Media Development
Public companies are in the public eye. Cruzani works to help food entrepreneurs to transition from being a local food enterprise that has looked for ways to create awareness, into a widely known operation. Public companies have communication resources and expertise that are just not practical for smaller firms to maintain. As Cruzani integrates itself into its franchise partners’ operations and discovers their food enterprise’s qualities, we can apply a national, and international, platform for getting the franchise’s message out for the benefit of all involved. As partners in success, Cruzani focuses on bringing select private food enterprises into our family of holdings so that they can benefit from group talents and resources.
Exit Horizon
No matter how much a food entrepreneur loves their food concept, there is always the potential for and exit to allow them to pursue other opportunities. Cruzani structures its platform to accommodate for operators to stay with their business in partnership or as a co-venturer with Cruzani as well as full scale acquisitions.
Our Brands
Tru-Food Provisions
Currently expanding across the Southeast and headquartered in Atlanta GA, TRU-Food Provision Company is a fast-casual restaurant concept offering consumers a healthy diverse menu made with fresh organic ingredients every day. The brand is known as the place where you should “Be TRU to YOU”. TRU-Food offers a diversity of menu items, from flatbread sandwiches, bowls, wraps, salads, and fresh proteins such as chicken, turkey, steak and falafel. All entrees are available in pre-prepared “meal plans”, for take-out, as well.
Cruzani is in the process of re-branding TRU-Food and plans to re-launch in 2019. The rebranding of TRU-Food represents the company’s growth and unique positioning in the healthy foods restaurant industry. This initiative will cover new name, interior designs, artwork, website, logo, existing products and new product lines. These changes are to align with the company’s new direction focusing in on the fundamental shift toward healthier eating. The new brand will remain headquartered in Atlanta, GA.
The Company’s flexible business model is allowing its management to identify and target additional acquisitions, in this space, to operate alongside this first enterprise. The launch of this new brand adds assets, while diversifying our revenues streams, improving profitability and increasing shareholder value.
Oventa
Oventa (formerly Supreme Sweets) will be the second, major operational focus of the Company.
Through this strategic asset acquisition, Cruzani brings manufacturing capability in-house, for the first time. Top management from Cruzani and Oventa have now held business launch meetings in Atlanta to prioritize opportunities. The first goal is to implement a new business plan to increase the sales of the new business segment of Cruzani significantly, which these production assets should enable. Through this acquisition of Oventa, Cruzani has gained a portfolio of existing commercial customers including well-known North American food retailers. These top rated customers serve as the foundation for targeted growth. Many of these customers have indicated their intention to increase order volumes in response to Oventa gaining new operational strength.
The second phase will be to evolve the food product mix toward high-value, high-margin production in the growing artisan food sector. Management has its sights set on expansion into GMO-free, all natural, no preservative, kosher and other high-skill areas, combining Cruzani’s innovation talent and high capacity facilities. These profitability-boosting moves can increase the dollar value of production capacity beyond current levels. The quality and breadth of the production resources now owned by Cruzani is impressive. Its 650-linear-foot spiral blast freezer can take food products down to minus 20C in only 3½ minutes. This gives Cruzani the existing capacity to make future North American and international frozen food deliveries. The company’s dedicated cookie machines each have the capacity to generate 24,000 cookies per hour. The production asset portfolio is astutely broad-based for the baked goods sector. It balances growth possibilities without being overly specialized. There are hundreds of equipment pieces and accessory components comprising the production equipment resource base now belonging to Cruzani, situated in a purpose-built 38,000 sq. ft. facility, with room for expansion.
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Prior to the acquisition by Cruzani, Oventa had been a Toronto based commercial bakery delivering custom private label products since 2015 to restaurant chains and grocery retailers. It was founded by husband and wife team Mario and Barbara Parravano, an award-winning couple with decades of combined experience. They founded Oventa as a platform to launch own-brand recipes and production innovation techniques. It has been their plan to operate as part of a public company. This goal has now been attained, activating the company’s full potential. These operations are now internal to Cruzani for the immediate benefit of its shareholders, where the Parravanos now manage Cruzani’s production operations.
Oventa has established a strong customer base with national and international retailers. Their 38,000 sq. ft. facility has the capability to produce any mixed, fresh baked, par-baked, frozen, fried, extruded or cold-slabbed product. Oventa’s relationship with Cruzani will enable Oventa to implement an ambitious product innovation and growth plan as our subsidiary.
Oventa (operating as Supreme) has in the past, and is still continuing, to receive product design requests from retailers and food service providers who are seeking new solutions to address consumer experimentation. Oventa is currently engaged in new product development under both private label arrangements and its own branding. Recently completed independent taste and quality testing is yielding new product launch plans that will be announced soon.
Oventa Foods will be located in the former operating premises of Supreme Sweets. The new company has a broader food industry mandate, compared with operations under the Supreme Sweets name. The new strategic plan leverages the intellectual property of proprietary formulations to expand offerings of sweet and savoury baked goods to more commercial clients than before and also to provide expertise and assistance for Cruzani’s contemplated food industry expansion. Premises renovations, plant layout adjustments and new certifications are planned for Oventa Foods’ Toronto location to prepare for its growth mandate.
Oventa Foods’ approach to food production comes in several phases.
Concept Development
Oventa Foods’ 38,000 sq. ft. facility has enormous production capacity. Our flexible approach begins with concept development either in partnership with an external team or as a solution based turnkey approach. Custom assignments can be large or small. Regardless, they will be first-class in quality. Fast service, fast delivery, fast results are important performance criteria for busy quick service restaurant operations. With proper planning Oventa Foods’ goal is to achieve best practices outcomes for a seamless back-end supplier function to quick service restaurants.
Intelligent Approach
There is no magic formula to get magical results. It takes an intelligent approach with intelligent recipes. This means healthy ingredients drawn from nature's bounty. Our team is masters at making food innovation work in practical ways to generate happy customers. We know that our customers have customers too. In private label and wholesale food supply relationships there are two levels of satisfaction for Oventa Foods to deliver. Our commercial customers not only need first rate finished products, they also need reliable service, appropriate pricing and self-motivated guidance by their supplier team toward new market opportunities. In our view good service and good taste go hand in hand.
The paradox of our time is that people want the most natural ingredients possible and yet expect the newest, most modern and efficient processes. At Oventa Foods we pride ourselves on achieving this balance through the art and science of first-rate finished results.
Manufacturing Capabilities – Flexible, High Capacity Machinery
Our goal is to advance next generation food production services for North American retailers and providers of packaged food to the public in any commercial venue.
Our existing facility is undergoing new design enhancements to better support our ambitious new outreach to the commercial food industry.
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Our management team and their associates have many decades of award winning experience in the sector, having operated production plants with high volume thresholds and service to many Fortune 500 companies.
| · | Ovens, rotary cutters, wrappers, mixers - for starters. | |
| · | Heaters, sheeters and crepe machines too. | |
| · | Power slitters, nitrogen cooling tunnel, extruder, guillotine and conveyer belts galore. | |
| · | 48-piston crumb press, chocolate shaving machines, mousee depositor & bun machines. | |
| · | 380' spiral blast freezing conveyer, wire cut cookie line, etc. |
Our Products
Oventa Food’s current product line focuses on sweet and savoury solutions for its clients’ product mix. Here is a sampling of its selection:
| · | Dessert Cakes such as the Exotica Bombe™, the Red Velvet and so much more | |
| · | Snack Cakes such as Apple Coffee Cake, Passionata™ Cake, Anytime™ Cake and more. | |
| · | Donuts - NOT your average donut shop donut! Ours have been transported by fans all over the world. | |
| · | Chocolate Lovers Headquarters – We go to great lengths to find new chocolate applications for your consumer product mix. |
ChocaWafr™
Oventa Foods is launching its proprietary new snack food, the mini ChocaWafr™ in alliance with long-established independent food-brand broker CNSB Foods of Toronto (www.CNSB.ca). The Company intends to cut through red tape to gain grocery store listings due to CNSB’s existing relationships with top North American supermarket chains.
ChocaWafr™ is a new chocolate-based bite-sized cookie crisp that was specially designed for prior approval by trendsetters in the QSR field (Quick Service Restaurant). They evaluated the merits of ChocaWafr™ performance in taste, nutrition, production quality and value. ChocaWafr™ received exceptional reviews. The snack will be marketed on the premise of “Miniature Size, Maximum Taste. All with Crispy Goodness.”
ChocaWafr™ responds to a trend in the snack industry of expanding the diversity of consumer experiences through variations of classic themes. In the chocolate chip cookie category, expansion from chewy texture to crisp has been ascendant.
Despite ChocaWafr™ having “premium product” characteristics, Oventa Foods and CNSB’s targeted launch will include price-conscious mass market outlets also, such as dollar-store environments, because of Oventa Foods’ cost-efficient food manufacturing capacity. This enables Oventa Foods to be competitive at all price points and in all quality tiers. The number of suitable potential grocery and other outlets for ChocaWafr™ in America exceeds 100,000 locations.
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ChocaWafr™ see-through packaging design supports ChocaWafr™ supplemental placement as an affordable impulse item at contact points in QSR coffee and donut chains, truck stops and vending markets to saturate its potential distribution footprint, without sacrificing quality.
Facilities
The Company currently has no ownership or leases of property. The Company’s business mailing address is 3500 Lennox Road, Suite 1500, Atlanta, Georgia 30309. The Company’s primary phone number is (404) 419-2253.
Intellectual Property
Cruzani, with its acquisitions of Oventa and TruFood, has acquired the businesses’ formulations, manufacturing capacity and know-how to supply top quality, value-oriented products, as well as certain trademarks.
Employees
Cruzani, Inc. does not have any employees other than our chief executive officer. Oventa has approximately 15 employees. There are no collective-bargaining agreements with our employees, and we have not experienced work interruptions or strikes. We believe our relationship with our employees is good.
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.
On June 20, 2018, GW Holdings Group, Inc. (“GW”) filed a lawsuit against the Company, in which GW alleges that the Company breached two Stock Purchase Agreements that GW entered into with the Company. The Company has filed an answer, and the case is currently pending.
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MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the OTC Marketplace operated by the OTC Markets Group, Inc., or “OTC,” under the ticker symbol “UHLN.” The following table sets forth the range of high and low closing bid quotes of our common stock per quarter as reported by the OTC for the past two fiscal years ended December 31, 2017 and 2016, respectively, and subsequent fiscal quarters ended March 31, 2018, June 30, 2018 and September 30, 2018 (to date). All quoted prices reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Quarter Ended |
| Low(1) |
|
| High(1) |
| ||
|
|
|
|
|
|
| ||
September 30, 2018 (as of September 17, 2018) |
| $ | 0.09 |
|
| $ | 0.27 |
|
June 30, 2018 |
| $ | 0.08 |
|
| $ | 1.07 |
|
March 31, 2018 |
| $ | 0.11 |
|
| $ | 0.55 |
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
| $ | 0.08 |
|
| $ | 0.45 |
|
September 30, 2017 |
| $ | 0.06 |
|
| $ | 0.91 |
|
June 30, 2017 |
| $ | 0.03 |
|
| $ | 0.39 |
|
March 31, 2017 |
| $ | 0.03 |
|
| $ | 0.17 |
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
| $ | 0.02 |
|
| $ | 0.16 |
|
September 30, 2016 |
| $ | 0.03 |
|
| $ | 0.73 |
|
June 30, 2016 |
| $ | 0.50 |
|
| $ | 15.50 |
|
March 31, 2016 |
| $ | 5.50 |
|
| $ | 38.50 |
|
_______
| (1) | All high and low prices are adjusted to reflect the assumed 1-for-100 reverse stock split, which will be effected prior to the effectiveness of this registration statement |
Registered Holders
As at December 31, 2017, there were approximately 132 record holders of our common stock.
Dividends
Holders of the Company’s common stock are entitled to receive such dividends as may be declared by our Board of Directors. No dividends on the Company’s common stock have ever been paid, and the Company 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and operating results together with our financial statements and consistrelated notes included elsewhere in this prospectus. This discussion and analysis and other parts of taxes currently due.this prospectus contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus. The last day of our fiscal year is December 31. Our fiscal quarters end on March 31, June 30, September 30, and December 31, and our current fiscal year ends on December 31, 2018.
Forward Looking Statements
This Registration Statement on Form S-1 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,” or “continue” or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “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 and Capital 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,” “Cruzani,” “we,” “us,” “our,” and similar terms shall refer to Cruzani, Inc., a Nevada corporation, and its subsidiaries.
Plan of Operations
Cruzani, 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. was a recreational power sports Original Equipment Manufacturer ("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 June 29, 2018, the Company filed Amended and Restated Articles of Incorporation with the State of Nevada to change its name to Cruzani, Inc. The name change is still pending approval by FINRA.
On June 30, 2018, Supreme Sweets Acquisition Corp. (n/k/a Oventa, Inc.), a subsidiary of the Company, and the Company (collectively, the “Company”) entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Supreme Sweets Inc. and 2498411 Ontario, Inc., as sellers (collectively, the “Seller”), pursuant to which in exchange for CAD $200,000 and a twenty percent (20%) interest in Oventa, Inc., the Company agreed to acquire the trade secret assets of Seller upon the terms and subject to the conditions set forth in the Asset Purchase Agreement. A second closing occurred on July 31, 2018, pursuant to which the Company acquired the furniture, fixtures and equipment of Seller in exchange for CAD $100,000. Seller is engaged in the business of preparing delicious snacks, pastries and baked goods with high quality ingredients for exceptional taste, including low calorie and gluten-free alternatives.
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The twelve-month period ended December 31, 2017 compared to the twelve-month period ended December 31, 2016
Results of Operations
Revenues
The Company had no revenues.
Operating Expenses
Operating general and administrative expenses decreased 96% due to a decrease in ongoing business operations. External professional fees decreased 64% due to due to a decrease in ongoing business operations.
Net Income taxes are accounted for(Loss)
During 2016, the Company recognized gains in accordanceconnection with SFAS No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS No. 109 income taxes are recognizedwriting off accounts payable aged over five years. During 2016, the Company incurred losses to the extent of writing off of various assets at book value. In addition, the Company experienced a decrease in the fair value of its derivatives over the prior-year period from the conversion of promissory notes from the prior year. See Note 1 to the Company’s Financial Statements.
Liquidity and Capital Resources
Initially, because the Company borrowed funds on a convertible basis, the Company’s cash position was positive. Overall, however, the Company, experienced a decreased cash position due to the decrease in ongoing business operations, because all operating expenses were paid out of 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 the Company’s Financial Statements.
Going Concern
The Company has no revenues and has incurred net losses. In addition, at December 31, 2017, there was an accumulated deficit of $75,244,112. These factors raise substantial doubt about the Company’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’s existing stockholders.
Results of Operations
The three-month period ended June 30, 2018 compared to the three-month period ended June 30, 2017
Revenues
The Company had no revenues.
Operating Expenses
Operating general and administrative expenses increased 100% to $42,822 for the following:
i) amount of taxes payablethree months ended June 30, 2018 from $0 during the three months ended June 30, 2017 due to an increase in ongoing business operations. professional fees increased 125.8% for the current year,three months ended June 30, 2018 in comparison to the three months ended June 30, 2017. Professional fees consist mostly of legal, investor relation and ii) deferred tax
assetsaccounting and liabilitiesaudit fees. The increase is due to an increase in investor relation and legal expense.
Other Income (Expense)
Other expense for the future tax consequencesthree months June 30, 2018 consists of interest expense of $53,453, a gain on change in fair value of derivatives of $318,920, and loss on convertible notes of $592,281. Other expense for the three months June 30, 2017 consisted of interest expense of $42,721 and a loss on change in fair value of derivatives of $847,462.
Net Loss
The Company had a net loss of $432,236 for the three months ended June 30, 2018, as compared to $917,911 for the three months ended June 30, 2017. This decrease in net loss is due to a gain on the change in fair value of derivatives.
The six-month period ended June 30, 2018 compared to the six-month period ended June 30, 2017
Revenues
The Company had no revenues.
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Operating Expenses
Operating general and administrative expenses increased 100% to $68,245 for the six months ended June 30, 2018 from $0 during the six months ended June 30, 2017 due to an increase in ongoing business operations. professional fees increased 80.1%. to $99,600 for the six months ended June 30, 2018 in comparison to $55,289 for the six months ended June 30, 2017. Professional fees consist mostly of legal, investor relation and accounting and audit fees. The increase is due to an increase in investor relation and legal expense.
Other Income (Expense)
Other expense for the six months June 30, 2018 consists of interest expense of $93,195, a gain on change in fair value of derivatives of $513,654, and loss on convertible notes of $628,586. Other expense for the six months June 30, 2017 consisted of interest expense of $234,970 and a loss on change in fair value of derivatives of $874,704.
Net Income
The Company had a net loss of $375,972 for the six months ended June 30, 2018, as compared to $1,164,963 for the six months ended June 30, 2017. This decreased in net loss is due to a gain on the change in fair value of derivatives.
Liquidity and Capital Resources
Initially, because the Company borrowed funds on a convertible basis, the Company’s cash position was positive. Overall, however, the Company, experienced a decreased cash position due to the decrease in ongoing business operations, because all operating expenses were paid out of cash on hand. In addition, the Company experienced a decrease in non-cash resources in connection the conversion of promissory notes. See Notes 4 and 5 to the Company’s Financial Statements.
Going Concern
The Company has no revenues and has incurred net losses. In addition, at June 30, 2018, there was an accumulated deficit of $75,620,084. These factors raise substantial doubt about the Company'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's existing stockholders.
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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.
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.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our directors and executive officers:
Name | Age | Position | Director Since | |||
Everett M. Dickson | 54 | President and Chief Executive Officer | June 27, 2017 |
Directors are elected to serve until the next annual meeting of stockholders and 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 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 appointed by, and serve at the pleasure 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, 2017, 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 Board 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 executive officers has been involved in any of the following events during the past ten years:
| · | any bankruptcy petition filed by or 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 conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); | |
| · | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; or | |
| · | being found by a court of 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. |
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Audit Committee
We currently do not have a separately standing Audit Committee due to our limited size.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 any 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 Board, 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 business and increase our operations, we intend to expand the size of our board and our committees and allocate responsibilities accordingly.
Potential Conflicts of Interest
Because we do not have an audit or compensation committee comprised of independent directors, the functions that would have been recognized differently inperformed 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 financial statements than for
tax purposes. Deferred tax assets and liabilities areBoard established using
statutory tax rates and are adjusted for tax rate changes. SFAS 109 also
requires that deferred tax assets be reduced by a valuation allowance if
itnominating committee. The Board is more likely than not that some portion or all of the deferred tax
assets willopinion that such committees are not be realized.
Allowance for Doubtful Accounts
It isnecessary since the Company's policyCompany has only five directors, and to provide an allowance for doubtful accounts
when it believesdate, 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.
Significant Employees
We do not have any significant employees other than our current executive officers and directors named in this Report.
Code of Ethics
We have not yet adopted a code of business conduct and ethics. We intend to do so in the near future and to post it on our website at www.cruzani.com.
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The following information concerns the total compensation paid 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 or acted in a similar capacity for non-collectability. Atthe Company at any time during the fiscal year ended December 31, 2017; (ii) the two most highly compensated executive officers who were serving as executive officers of the Company at the end of the fiscal year ended December 31, 2017 whose total compensation exceeded $100,000; and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to 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.
Everett Dickson, the Company’s principal executive officer and sole officer of the Company, has not received any compensation during the fiscal year ended December 31, 2017.
Director Compensation
The Company’s directors, including the Chairman of the Board, do not receive compensation for their services as such. 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, 2017, the Company had no group life, health, hospitalization, or medical reimbursement or relocation plans in effect. Further, the Company had no pension plans or plans or agreements which provide compensation on the event of termination of employment or corporate change in control.
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. Effective December 31, 2017, however, pursuant to our Articles of Incorporation, our Board has been granted 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 September 12, 2018, 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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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 sets forth information with respect to the beneficial ownership of each class of our voting securities as of September 12, 2018 (adjusted to reflect the assumed reverse stock split described below), by (i) each of our directors and executive officers, (iii) all of our directors and executive officers as a group and (iii) each stockholder known by us to be the beneficial owner of more than 5% of our outstanding voting capital stock. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment 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.
Unless otherwise indicated in the following table, the address for each person named in the table is c/o Cruzani, Inc., 3500 Lennox Road, Suite 1500, Atlanta, Georgia 30309.
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Everett M. Dickson- |
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Chief Executive Officer, Interim Chief Financial Officer and Sole Director(2) |
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Craigstone, Ltd. 88 Wood Street 10th Floor |
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* Less than 1%
(1) | Applicable percentages are based on 9,252,402 shares of our common stock and calculated as required by rules promulgated by the SEC. This calculation is based on (i) 925,240,208 shares of our common stock outstanding on September 12, 2018, and (ii) adjusted to assume the effectiveness of the contemplated 1-for-100 reverse stock split. |
(2) | Mr. Dickson has agreed to purchase from Craigstone 26,667 shares of common stock (assuming the 1-for 100 reverse stock split), 2,484,422 shares of Series A preferred stock, 5,000 shares of Series B preferred stock, for cash that is payable in installments through June 15, 2020, at which time such shares will be transferred to Mr. Dickson upon delivery of payment in full. Craigstone has granted Mr. Dickson a proxy to vote all of such shares until such time as Mr. Dickson has completed payment in full; provided, however, such proxy would revert to Craigstone in the event of an uncured failure by Mr. Dickson to deliver payment when due. |
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TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS AND CORPORATE GOVERNANCE
Under Item 404 of Regulation S-K, we are required to describe 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 of those persons.
None.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the Securities and Exchange Commission. Such filings are available to the public over the Internet at the Securities and Exchange Commission’s website at http://www.sec.gov.
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the securities offered under this prospectus. This prospectus, which forms a part of that registration statement, does not contain all information included in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits.
You may review a copy of the registration statement, and the reports and other information that we file with the Securities and Exchange Commission, at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E. Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may also read and copy any materials we file with the Securities and Exchange Commission at the Securities and Exchange Commission’s public reference room. Our filings and the registration statement can also be reviewed by accessing the Securities and Exchange Commission’s website at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions.
The representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were made as of an earlier date. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Pursuant to our articles of incorporation and bylaws, we may indemnify an officer or director who is made a party to any proceeding, because of his position as such, to the fullest extent authorized by the corporation laws of the State of Nevada, as the same exists or may hereafter be amended. In certain cases, we may advance expenses incurred in defending any such proceeding.
To the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of our company in the successful defense of any action, suit or proceeding) is asserted by any of our directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.
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(FORMERLY US HIGHLAND, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Annual Report for Fiscal Year Ended December 31, 2017 and 2016 | Page | ||
F-2 | |||
F-3 | |||
F-4 | |||
F-5 | |||
F-6 | |||
F-7 | |||
Quarterly Report for the Six Months Ended June 30, 2018 | Page | ||
F-16 | |||
F-17 | |||
F-18 | |||
Notes to Consolidated Condensed Financial Statements (Unaudited) | F-19 |
| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Cruzani, Inc. (f/k/a US Highland, Inc. management does not feel that there are any
doubtful accounts.
Revenue Recognition
Costs)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Goods Sold costs includeCruzani, Inc. (f/k/a US Highland, Inc.) (“the Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all direct equipment, amortization,
material shipping costs and those indirect costs related to contract
performance, such as indirect labor. Selling, general and administrative
costs are charged to expenses as incurred. Changes in contract
performance, contract conditions, and estimated profitability that may
result in revisions to costs and income are recognized inrespects, the period in
which the revisions are determined.
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For revenue from product sales,financial position of the Company recognizes revenue in
accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition," which superseded SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidenceas of an arrangement exists; (2) delivery has occurred; (3) the selling price
is fixedDecember 31, 2017 and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the
products delivered2016, and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period
the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such
time that the Company and the customer jointly determine that the
product has been delivered or no refund will be required. SAB No. 104
incorporates Emerging Issues Task Force ("EITF") No. 00-21, "Multiple-
Deliverable Revenue Arrangements." EITF No. 00-21 addresses accounting
for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect of
implementing EITF No. 00-21 on the Company's financial position and
results of its operations was not significant. This issue addresses
determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the
separate units of accounting. EITF No. 00-21 became effective for
revenue arrangements entered into in periods beginning after September
15, 2003.
For those contracts which contain multiple deliverables, management must
first determine whether each service, or deliverable, meets the
separation criteria of EITF No. 00-21. In general, a deliverable (or a
group of deliverables) meets the separation criteria if the deliverable
has standalone value to the customer and if there is objective and
reliable evidence of the fair value of the remaining deliverables in the
arrangement. Each deliverable that meets the separation criteria is
considered a "separate unit of accounting." Management allocates the
total arrangement consideration to each separate unit of accounting
based on the relative fair value of each separate unit of accounting.
The amount of arrangement consideration that is allocated to a unit of
accounting that has already been delivered is limited to the amount that
is not contingent upon the delivery of another separate unit of
accounting. After the arrangement consideration has been allocated to
each separate unit of accounting, management applies the appropriate
revenue recognition method for each separate unit of accounting as
described previously based on the nature of the arrangement. All
deliverables that do not meet the separation criteria of EITF No. 00-21
are combined into one unit of accounting, and the appropriate revenue
recognition method is applied.
Basis of Presentation
In the opinion of management, the accompanying balance sheets and
related interim statements of income,its cash flows and stockholders'
equity include all adjustments, consisting only of normal recurring
48
items, necessary for their fair presentationthe years then ended, in conformity with accounting principles generally accepted in the United States of America
("U.S. GAAP"). Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, and expenses. Actual results and outcomes
may differ significantly from management's estimates and assumptions.
Interim results are not necessarily indicative of resultsAmerica.
Basis for a full
year. The information included in this Form 10-Q should be read in
conjunction with information included in the Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported revenues and
expenses during the reporting period. Actual results could differ
significantly from those estimates.
Long-Lived Assets
Equipment is stated at cost and depreciated over a useful life of 7
years. Expenditures for maintenance and repairs are charged to
operating expenses as incurred. When equipment is retired or otherwise
disposed of, the cost of the asset and the related accumulated
depreciation are removed from the accounts with the resulting gain or
loss being reflected in results of operations.
Intangible assets include intellectual property rights which were valued
at the date of acquisition by management and amortized over 10 years.
Management assesses the recoverability of equipment and intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from its future
undiscounted cash flows. If it is determined that an impairment has
occurred, an impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its estimated fair value.
New Accounting Standards
Recent Accounting Pronouncements
In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on
estimating fair value when market activity has decreased and on
identifying transactions that are not orderly. Additionally, entities
are required to disclose in interim and annual periods the inputs and
valuation techniques used to measure fair value. This FSP is effective
for interim and annual periods ending after June 15, 2009. The Company
does not expect the adoption of FSP FAS 157-4 will have a material
impact on its financial condition or results of operation.
49
In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not
Active," ("FSP FAS 157-3"), which clarifies application of SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements have not been
issued. The adoption of FSP FAS 157-3 had no impact on the Company's
results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8,
"Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities." This
disclosure-only FSP improves the transparency of transfers of financial
assets and an enterprise's involvement with variable interest entities,
including qualifying special-purpose entities. This FSP is effective
for the first reporting period (interim or annual) ending after December
15, 2008, with earlier application encouraged. The Company adopted this
FSP effective January 1, 2009. The adoption of the FSP had no impact on
the Company's results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employers'
Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-
1"). FSP FAS 132(R)-1 requires additional fair value disclosures about
employers' pension and postretirement benefit plan assets consistent
with guidance contained in SFAS 157. Specifically, employers will be
required to disclose information about how investment allocation
decisions are made, the fair value of each major category of plan assets
and information about the inputs and valuation techniques used to
develop the fair value measurements of plan assets. This FSP is
effective for fiscal years ending after December 15, 2009. The Company
does not expect the adoption of FSP FAS 132(R)-1 will have a material
impact on its financial condition or results of operation.
In September 2008, the FASB issued exposure drafts that eliminate
qualifying special purpose entities from the guidance of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and FASB Interpretation 46 (revised
December 2003), "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51," as well as other modifications. While
the proposed revised pronouncements have not been finalized and the
proposals are subject to further public comment, the Company anticipates
the changes will not have a significant impact on the Company's
financial statements. The changes would be effective March 1, 2010, on
a prospective basis.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP EITF
03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and
therefore need to be included in the computation of earnings per share
under the two-class method as described in FASB Statement of Financial
Accounting Standards No. 128, "Earnings per Share." FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning on
or after December 15, 2008 and earlier adoption is prohibited. We are
50
not required to adopt FSP EITF 03-6-1; neither do we believe that FSP
EITF 03-6-1 would have material effect on our consolidated financial
position and results of operations if adopted.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-
and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies
how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement of premium revenue and claims
liabilities. This statement also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163 is effective for
fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 162, "The Hierarchy of Generally Accepted Accounting
Principles". SFAS No. 162 sets forth the level of authority to a given
accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative
category will prevail. SFAS No. 162 will become effective 60 days after
the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA
Professional Standards. SFAS No. 162 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133. This standard
requires companies to provide enhanced disclosures about (a) how and why
an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial
performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has
not yet adopted the provisions of SFAS No. 161, but does not expect it
to have a material impact on its consolidated financial position,
results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107
(SAB 107), in developing an estimate of expected term of "plain vanilla"
share options in accordance with SFAS No. 123 (R), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined
estimates of expected term. At the time SAB 107 was issued, the staff
believed that more detailed external information about employee exercise
behavior (e.g., employee exercise patterns by industry and/or other
categories of companies) would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it
51
would not expect a company to use the simplified method for share option
grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available
by December 31, 2007. Accordingly, the staff will continue to accept,
under certain circumstances, the use of the simplified method beyond
December 31, 2007. The Company currently uses the simplified method for
"plain vanilla" share options and warrants, and will assess the impact
of SAB 110 for fiscal year 2009. It is not believed that this will have
an impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements-an amendment of ARB No.
51. This statement amends ARB 51 to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Before this statement was issued, limited guidance existed
for reporting non-controlling interests. As a result, considerable
diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as
liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption
is prohibited. The effective date of this statement is the same as that
of the related Statement 141 (revised 2007). The Company will adopt this
Statement beginning March 1, 2009. It is not believed that this will
have an impact on the Company's consolidated financial position, results
of operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in
Statement 141. This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree; (b) recognizes and
measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement applies
prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. An entity may not apply it before that
date. The effective date of this statement is the same as that of the
related FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The Company will adopt this statement beginning
March 1, 2009. It is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
52
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Liabilities-Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. This
option is available to all entities. Most of the provisions in FAS 159
are elective; however, an amendment to FAS 115 Accounting for Certain
Investments in Debt and Equity Securities applies to all entities with
available for sale or trading securities. Some requirements apply
differently to entities that do not report net income. SFAS No. 159 is
effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes
that choice in the first 120 days of that fiscal year and also elects to
apply the provisions of SFAS No. 157 Fair Value Measurements. The
Company will adopt SFAS No. 159 beginning March 1, 2008 and is currently
evaluating the potential impact the adoption of this pronouncement will
have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement
does not require any new fair value measurements. However, for some
entities, the application of this statement will change current
practice. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. Earlier application is encouraged, provided
that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period
within that fiscal year. The Company will adopt this statement March 1,
2008, and it is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
Reclassification
Certain reclassifications may have been made in prior years' financial
statements to conform to classifications used in the current year.
Note 2 - Intangible Assets
The cost to acquire intangible assets in 2010 has been allocated to the
assets acquired according to the estimated fair values and amortized
over a 10 year life using the straight line method. The Company has
adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby the
Company periodically tests its intangible assets for impairment. On an
annual basis, and when there is reason to suspect that their values have
been diminished or impaired, these assets are tested for impairment, and
write-downs will be included in results from operations.
53
The identifiable intangible assets acquired and their carrying values at
March 31, 2010:
2010
----
Intellectual Property Acquired from
Highland Group AB $13,000,000
Less: Accumulated Amortization (0)
-----------
Net Intangible Asset $13,000,000
Note 3 -Long-term Debt
The Company does not have any long-term debt.
Note 4 - Other Commitments and Contingencies
Lease Agreement
Current manufacturing operations include 18,000 square feet for general
manufacturing, CNC and manual machining, and final assembly, 5,000
square feet for welding, painting, and fabrication operations, and
10,000 square feet for administration (lease purchase at $8,500 per
month).
Note 5 - Significant Cash and/or Stock Based Acquisitions of Assets
In three separate transactions involving cash and/or stock, the Company
acquired $400,000 in finished goods inventory from RSGA International,
Inc., $1 million in components and finished goods inventory from ATK of
Oklahoma, Inc., and $13 million in intellectual property from the
Highland Group AB (the Swedish company which caused US Highland, Inc. to
be formed and from which US Highland, Inc. acquired most of its assets,
its brand name, some of the members of the US Highland management team,
and the US Highland product line).
Note 6 - Subsequent Event
The Company completed a series of stock purchase agreements during April
of 2010 in which the Company received approximately $762,404 in paid in
capital from the sale of common restricted stock at $1.25 per share in a
private offering with a commitment to register the common restricted
shares in a near term registration statement and the option to
repurchase the shares within 60 days at $2.50 per share.
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Harcom Productions, Inc.
Tulsa, Oklahoma
To the Board of Directors:
We have audited the accompanying consolidated balance sheets of Harcom
Productions, Inc. for the year ended December 31, 2009 and the related
statements of operations, shareholders' equity, and cash flows for the
year then ended Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audit. The
financial statements for the year ended December 31, 2008 were audited
by other auditors and their report dated, March 30, 2009 expressedaudits. We are a going concern issue.
We conducted our audit in accordancepublic accounting firm registered with auditing standards of the Public Company Accounting Oversight Board (United States). (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion,
Consideration of the financial statements referredCompany’s Ability to above present
fairly, in all material respects, the financial position of Harcom
Productions, Inc.Continue as of December 31, 2009, 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.
a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 21 to the financial statements, the Company has suffered recurring losses from operations, an accumulated deficit, and has a net capital deficiency, which raisescurrent liabilities exceed current assets. These factors raise substantial doubt about itsthe Company’s ability to continue as a going concern. Management'sManagement’s plans regarding thosein regard to these matters are also are described in Note 2.1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Hood Sutton Robinson & Freeman CPAs, P.C.
Hood Sutton Robinson & Freeman CPAs, P.C.
Certified Public Accountants
March 31 2010
Tulsa, Oklahoma
55
Harcom Productions, Inc.
Balance Sheets
December 31, 2009 and 2008
ASSETS 2009 2008
---- ----
Current Assets
Cash & Cash Equivalents $ 32,696 $ 8,337
Accounts Receivable, net 41,292 59,243
Other Current Assets - 2,733
--------- ---------
Total Current Assets 73,988 70,313
--------- ---------
Other Assets
Intangible Assets - Less Amortization 72,235 88,783
Deposits 1,500 1,500
--------- ---------
Total Other Assets 73,735 90,283
--------- ---------
TOTAL ASSETS $ 147,723 $ 160,598
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Liabilities $ 17,263 $ 25,689
Due to related parties 164,070 192,808
Note payable (Current) 9,027 8,629
--------- ---------
Total Current Liabilities 190,540 227,126
--------- ---------
Long Term Liabilities, net of current
portion 131,660 140,867
--------- ---------
Total Liabilities 322,200 367,993
--------- ---------
Stockholders' Deficit
Common Stock, Shares Authorized
100,000,000, Par Value $.01 Issued
and Outstanding 1,637,500 shares 16,375 16,375
Additional Paid-In Capital 242,887 99,067
Accumulated Deficit (433,739) (322,839)
--------- ---------
Total Deficit (174,477) (207,397)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 147,723 $ 160,596
========= =========
/s/ Fruci & Associates II, PLLC We have served as the Company’s auditor since 2017. Spokane, Washington | |
March 30, 2018 | |
| F-2 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
|
| 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 |
|
The accompanying notes are an integral part of these statements
56
Harcom Productions, Inc.
Statements of Operations
For the Years Ended December 31, 2009 and 2008
2009 2008
---- ----
REVENUES
Shipped Products $ 230,999 $ 378,241
Refund/Discounts of Services (879) (1,182)
--------- ---------
Total Revenue 230,120 377,059
--------- ---------
COSTconsolidated financial statements.
| F-3 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
|
|
| For the Year Ended December 31, |
| |||||
|
|
| 2017 |
|
| 2016 |
| ||
|
|
|
|
|
|
|
| ||
Revenue |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
| - |
|
|
| 2,252 |
|
General and administrative |
|
|
| 1,681 |
|
|
| 39,014 |
|
Professional fees |
|
|
| 78,715 |
|
|
| 220,796 |
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
| 80,396 |
|
|
| 262,062 |
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
| (80,396 | ) |
|
| (262,062 | ) |
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
| (325,471 | ) |
|
| (817,841 | ) |
Change in fair value of derivatives |
|
|
| (44,084 | ) |
|
| 16,932,425 |
|
Gain on settlement of debt |
|
|
| - |
|
|
| 624,966 |
|
Loss on Disposal of Assets |
|
|
| (383 | ) |
|
| (211,681 | ) |
Loss on Convertible Notes |
|
|
| (250,149 | ) |
|
| (2,766,193 | ) |
Other income |
|
|
| - |
|
|
| 2,311 |
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense) |
|
|
| (620,087 | ) |
|
| 13,763,987 |
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
| $ | (700,483 | ) |
| $ | 13,501,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) Per Common Share |
|
|
|
|
|
|
|
|
|
- Basic |
|
| $ | - |
|
| $ | 0.11 |
|
- Diluted |
|
| $ | - |
|
| $ | 0.06 |
|
Basic weighted average common shares outstanding |
|
|
| 321,226,043 |
|
|
| 122,234,935 |
|
Diluted weighted average common shares outstanding |
|
|
| 321,226,043 |
|
|
| 237,835,850 |
|
The accompanying notes are an integral part of these statements
57
Harcom Productions, Inc.
Statement of Stockholders' Equity
For the Years Ended Decemberconsolidated financial statements.
| F-4 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
|
| 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 Shareholder’s Equity |
| |||||||||||||
Balance, December 31, 2015 |
|
| - |
|
| $ | - |
|
|
| 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 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Debt Conversions |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 257,498,400 |
|
|
| 2,574,985 |
|
|
| - |
|
|
| 194,229 |
|
|
| - |
|
|
| - |
|
|
| 2,769,214 |
|
Write-off of shares issuable for accrued interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (197,865 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (197,865 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,501,925 |
|
|
| 13,501,925 |
|
Balance, December 31, 2016 |
|
| - |
|
| $ | - |
|
|
| 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 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued on convertible notes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 29,788,980 |
|
|
| 297,890 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 297,890 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (700,483 | ) |
|
| (700,483 | ) |
Balance, December 31, 2017 |
|
| - |
|
| $ | - |
|
|
| 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 statements
58
Harcom Productions, Inc.
Statementsconsolidated financial statements.
| F-5 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
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 Cash Flows
For the Years Ended Decemberthese consolidated financial statements.
| F-6 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009 and 2008
2009 2008
---- ----
Operating Activities
Net Income(Loss) $(110,900) $(108,683)
Adjustments to reconcile Net Income
(Loss) To net cash used in operating
activities:
Amortization 16,548 16,548
Accounts receivable 17,951 (3,215)
Accounts Payable and Accrued Liabilities (8,426) (16,246)
Prepaid expenses 2,733 2,263
--------- ---------
Net Cash (Used In) Provided By Operating
Activities 28,806 (650)
--------- ---------
Investing Activities - -
Financing Activities:
Due to Related party (36,497) 121,501
Note Payable (Current (9,207) (8,629)
Capital Contribution 143,820 -
--------- ---------
Net Cash Provided By Financing Activities 98,116 112,872
--------- ---------
Net Change in Cash 16,022 3,539
Cash, Beginning of Period 8,337 4,798
--------- ---------
Cash, End of Period $ 24,359 $ 8,337
========= =========
Supplemental Information
Interest Paid $ 13,072 $ 19,253
========= =========
59
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies
2017
1. | Summary of Business and Basis of Presentation |
Organization and Nature of Operations
- -------------------------------------
Harcom Productions,Business
Cruzani, Inc. was incorporated in 1999 in the state of
Oklahoma. The Company's headquarters are located in Tulsa, Oklahoma. In
early 1999, the Company executed a Purchase Agreement to acquire the
operating and intangible assets of an existing production company from a
related party. As such, the Company has since operatedoriginally formed as a productionlimited liability company specializing in on hold messaging for all types of companies.
Cash and Cash Equivalents
- -------------------------February 5, 1999 under the name The Company considers highly liquid investments (those readily
convertiblePowerhouse, L.L.C. pursuant to cash) purchased with original maturity dates of three
months or less to be cash equivalents.
Income Taxes
- ------------
In 2007, the Company had completed its conversion to a C-Corporation
under the laws of the stateState of Oklahoma. Income taxesOn 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”) is a recreational power sports Original Equipment Manufacturer (“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 providednecessary for a fair presentation of the results for the tax effects of transactions reportedinterim periods presented.
Certain information in footnote disclosures normally included in the financial statements and
consist of taxes currently due. Income taxes are accounted for in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS No. 109 income taxes are recognized for the following:
i) amount of taxes payable for the current year, and ii) deferred tax
assets and liabilities for the future tax consequences of events that
have been recognized differently in the financial statements than for
tax purposes. Deferred tax assets and liabilities are established using
statutory tax rates and are adjusted for tax rate changes. SFAS 109 also
requires that deferred tax assets be reduced by a valuation allowance if
it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Allowance for Doubtful Accounts
- -------------------------------
It is the Company's policy to provide an allowance for doubtful accounts
when it believes there is a potential for non-collectability. As of
December 31, 2009, the Company's allowance for doubtful accounts totaled
$3,960 based upon management's analysis of possible bad debts. This
analysis was based on a two year study of bad debt as it relates to
Receivables.
Revenue Recognition
- -------------------
Costs of Goods Sold costs include all direct equipment, amortization,
material, shipping costs and those indirect costs related to contract
performance, such as indirect labor. Selling, general and administrative
costs are charged to expenses as incurred. Changes in contract
60
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
performance, contract conditions, and estimated profitability that may
result in revisions to costs and income are recognized in the period in
which the revisions are determined.
For revenue from product sales, the Company recognizes revenue in
accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition," which superseded SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred; (3) the selling price
is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the
products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period
the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such
time that the Company and the customer jointly determine that the
product has been delivered or no refund will be required. SAB No. 104
incorporates Emerging Issues Task Force ("EITF") No. 00-21, "Multiple-
Deliverable Revenue Arrangements." EITF No. 00-21 addresses accounting
for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect of
implementing EITF No. 00-21 on the Company's financial position and
results of operations was not significant. This issue addresses
determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the
separate units of accounting. EITF No. 00-21 became effective for
revenue arrangements entered into in periods beginning after September
15, 2003.
For those contracts which contain multiple deliverables, management must
first determine whether each service, or deliverable, meets the
separation criteria of EITF No. 00-21. In general, a deliverable (or a
group of deliverables) meets the separation criteria if the deliverable
has standalone value to the customer and if there is objective and
reliable evidence of the fair value of the remaining deliverables in the
arrangement. Each deliverable that meets the separation criteria is
considered a "separate unit of accounting." Management allocates the
total arrangement consideration to each separate unit of accounting
based on the relative fair value of each separate unit of accounting.
The amount of arrangement consideration that is allocated to a unit of
accounting that has already been delivered is limited to the amount that
is not contingent upon the delivery of another separate unit of
accounting. After the arrangement consideration has been allocated to
each separate unit of accounting, management applies the appropriate
61
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
revenue recognition method for each separate unit of accounting as
described previously based on the nature of the arrangement. All
deliverables that do not meet the separation criteria of EITF No. 00-21
are combined into one unit of accounting, and the appropriate revenue
recognition method is applied.
Basis of Presentation
- ---------------------
In the opinion of management, the accompanying balance sheets and
related interim statements of income, cash flows, and stockholders'
equity include all adjustments, consisting only of normal recurring
items, necessary for their fair presentationwere prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Preparingand 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 Concern
The accompanying consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, and expenses. Actual results and outcomes
may differ significantly from management's estimates and assumptions.
Interim results are not necessarily indicative of results for a full
year. The information included in this Form 10-Q should be read in
conjunction with information included in the Form 10-K.
Use of Estimates
- ----------------
The preparation of financial statementshave 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 operations, and as of December 31, 2017, current liabilities exceed current assets by $2,637,087 and the Company has an accumulated deficit of $75,244,112. The Company’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’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company’s development and marketing efforts.
| F-7 |
| Table of Contents |
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) | Principles of Consolidation |
The Company’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 subsidiaries, USH Distribution Corp., and Powersports Brand Alliance, Inc. All significant intercompany transactions and balances have been eliminated.
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’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.
e) | 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.
| F-8 |
| Table of Contents |
Financial instruments consist principally of cash and cash equivalents, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2017 or 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.
f) | 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, 2017 or 2016.
g) | Research and Development |
Research and development costs are expensed as incurred.
h) | Basic and Diluted Net Loss Per Common Share |
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.
i) | Subsequent Events |
The Company’s management reviewed all material events through the issuance date of this report for disclosure purpose.
j) | Recently Issued Accounting Pronouncements |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3. | Deposit on TruFood Provisions Co. Acquisition |
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 stock of Cruzani 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.
| F-9 |
| Table of Contents |
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. 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. 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. 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. e) 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. f) 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. Total Less Short-Term Portion Long Term Loans Payable $ 27,000 $ 27,000 $ 3,000 $ 3,000 $ 111,000 $ 111,000 $ 190,000 $ 190,000 $ 100,000 $ 100,000 $ 50,000 $ 50,000 $ 481,000 $ 481,000 (481,000 ) (481,000 ) $ - $ -
As of December 31, 2017, these loans are past due and therefore classified as current debt.
6. | Related Party Transactions |
Certain 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 former officers and directors.
7. | Convertible Debentures |
a) | Effective January 25, 2010, the Company issued a convertible note for $225,000. Pursuant to the terms of the agreement, the loan was unsecured, non-interest bearing, and was due on December 21, 2010. The note was convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 65% of the average of the closing bid prices of the common stock during the 28 trading days prior to the date of the conversion notice and was subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liability of $538,249 resulted in a full discount to the note payable of $225,000 and the recognition of a loss on derivatives of $313,249. The note was written off during 2016 under the statute of limitations (See Note 1). |
| F-10 |
| Table of Contents |
b) | On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company’s common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. The note is secured against substantially all of the assets of the Company. |
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
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 60% 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 February 11, 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 derivative liabilities of $308,492 resulted in a full discount to the note payable of $250,000 and the recognition of $59,492 as additional interest expense. |
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 derivative liabilities of $95,047 resulted in a full discount to the note payable of $50,000 and the recognition of $45,047 as additional interest expense. |
At December 31, 2017 and 2016, 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 October 30, 2017, the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds of $25,000. The notes are convertible at any time after September 13, 2018 at a mutually agreed upon conversion price, bearing interest rate at 10% per annum and due on October 30, 2019. Due to these provisions, the embedded conversion options does not currently qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. |
At December 13, 2017, the carrying value of the note was $25,000.
| F-11 |
| Table of Contents |
f) | On November 18, 2017, the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds of $25,000. The notes are convertible at any time after September 13, 2018 at a mutually agree upon conversion price, bearing interest rate at 10% per annum and due on November 30, 2019. Due to these provisions, the embedded conversion options does not currently quality for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. |
At December 13, 2017, the carrying value of the note was $25,000.
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 fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
|
| 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 |
|
The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black- Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’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. |
| F-12 |
| Table of Contents |
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. |
10. | Common Stock |
a) | During August, 2016, the Company issued 38,479,487 shares of common stock to settle $47,904 on debt conversions with two significant shareholders of the Company. | |
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 convertible debt into common stock. In accordance with ASC 815 Derivatives and hedging, the Company analyzed which contracts could be classified as equity through the following sequencing methodology: contracts with no maturity date (convertible preferred shares) then contracts with the earliest maturity date first. Under this methodology, the management determined there was no additional liability, as there is already a derivative liability recorded for the embedded conversion feature. |
11. | Commitments |
a) | 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 September 6, 2016, the company paid the remaining $150,000 to settle this dispute in full | |
b) | On October 5, 2017, the Company entered into a letter of intent for an acquisition of 100% equity of TruFood Provisions Co in exchange for 65% of Cruzani’s issued and outstanding stock and $75,000. This letter shall terminate, unless extended by mutual written agreement, upon the earliest to occur of a) written notice by the Company to TruFood, b) execution of a purchase agreement, or c) January 31, 2018. As of December 31, 2017, the company had paid $30,000 as deposit for this acquisition and $45,000 in accounts payable for the remaining balance due. |
| F-13 |
| Table of Contents |
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.
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 |
|
Depreciation |
|
| - |
|
|
| 2,252 |
|
Accretion |
|
| 61,443 |
|
|
| 693,784 |
|
Gain/Loss on derivatives and convertible notes |
|
| (100,039 | ) |
|
| (14,166,232 | ) |
Gain/Loss on write-down of assets and liabilities |
|
| 130 |
|
|
| 413,285 |
|
Net operating loss |
|
| (119,441 | ) |
|
| (8,466,256 | ) |
Valuation allowance |
|
| 119,441 |
|
|
| 8,466,256 |
|
|
|
|
|
|
|
|
|
|
Net deferred taxes |
| $ | – |
|
| $ | – |
|
| F-14 |
| Table of Contents |
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 year end the deposit due to TruFood was paid in full. | |
b) | Subsequent to year end Adar Bays converted $11,159.39 of principal into 11,702,490 shares of common stock. In Addition, GW holdings, also converted $16,000.00 in principal into 29,023,731 shares of common stock | |
c) | On January 4th 2018, the Company issued a convertible note payable of $25,000. The note bears interest at an annual rate of 10% per annum, is uncollateralized, and matures 1 year after the date of issuance. Monthly payment are required beginning on the maturity date. The note becomes convertible September 13, 2018. | |
d) | On January 14th 2018 the Company issued a convertible note payable of $25,000. The note bears interest at an annual rate of 10% per annum, is uncollateralized and matures 1 year after the date of issuance. Monthly payment are required beginning on the maturity date. The note becomes convertible September 13, 2018. | |
e) | Refer to 8-K’s filed subsequent to year end. | |
f) | Subsequent to year end the articles were amended to increase the authorized to 1 billion. |
| F-15 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||
ASSETS |
| (unaudited) |
|
|
| |||
Current Assets: |
|
|
|
|
|
| ||
Cash |
| $ | 2,565 |
|
| $ | 3,066 |
|
Deposits on acquisition |
|
| 124,000 |
|
|
| 75,000 |
|
Total Current Assets |
|
| 126,565 |
|
|
| 78,066 |
|
Intangible assets |
|
| 151,880 |
|
|
| - |
|
Property and equipment, net |
|
| 6,367,227 |
|
|
| - |
|
Total Assets |
| $ | 6,645,672 |
|
| $ | 78,066 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 349,365 |
|
| $ | 350,465 |
|
Accrued liabilities |
|
| 753,033 |
|
|
| 704,987 |
|
Convertible Notes, net of discounts of $69,925 and $180,716, respectively |
|
| 546,375 |
|
|
| 768,753 |
|
Derivative liabilities |
|
| 335,380 |
|
|
| 409,948 |
|
Loans payable, net of discount of $68,415 and $0, respectively |
|
| 495,465 |
|
|
| 111,000 |
|
Loans payable – related party |
|
| 370,000 |
|
|
| 370,000 |
|
Other liabilities |
|
| 6,367,227 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
| 9,216,845 |
|
|
| 2,715,153 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (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; 515,838,889 and 345,450,049 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively |
|
| 5,158,392 |
|
|
| 3,454,502 |
|
Treasury stock, at cost – 58,333 shares |
|
| (773,500 | ) |
| (773,500) |
| |
Additional paid in capital |
|
| 68,630,154 |
|
|
| 69,892,158 |
|
Accumulated deficit |
|
| (75,620,084 | ) |
| (75,244,112) |
| |
Total Stockholders' Deficit |
|
| (2,571,173 | ) |
| (2,637,087) |
| |
Total Liabilities and Stockholders' Equity |
| $ | 6,645,672 |
|
| $ | 78,066 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-16 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Revenue |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 42,822 |
|
|
| - |
|
|
| 68,245 |
|
|
| - |
|
Professional fees |
|
| 62,600 |
|
|
| 27,728 |
|
|
| 99,600 |
|
|
| 55,289 |
|
Total operating expenses |
|
| 105,422 |
|
|
| 27,728 |
|
|
| 167,845 |
|
|
| 55,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (105,422 | ) |
|
| (27,728 | ) |
|
| (167,845 | ) |
|
| (55,289 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (53,453 | ) |
|
| (42,721 | ) |
|
| (93,195 | ) |
|
| (234,970 | ) |
Change in fair value of derivatives |
|
| 318,920 |
|
|
| (847,462 | ) |
|
| 513,654 |
|
|
| (874,704 | ) |
Loss on convertible notes |
|
| (592,281 | ) |
|
| - |
|
|
| (628,586 | ) |
|
| - |
|
Total other expense |
|
| (326,814 | ) |
|
| (890,183 | ) |
|
| (208,127 | ) |
|
| (1,109,674 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
| (432,236 | ) |
|
| (917,911 | ) |
|
| (375,972 | ) |
|
| (1,164,963 | ) |
Provision for income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | (423,236 | ) |
| $ | (917,911 | ) |
| $ | (375,972 | ) |
| $ | (1,164,963 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.0 | ) |
| $ | (0.00 | ) |
Weighted average shares outstanding, basic and diluted |
|
| 449,366,834 |
|
|
| 315,661,069 |
|
|
| 406,209,838 |
|
|
| 315,661,069 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-17 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| For the Six Months Ended June 30, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
CASH FLOW FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | (375,972 | ) |
| $ | (1,164,963 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Accretion expense |
|
| - |
|
|
| 180,716 |
|
Change in fair value of derivatives |
|
| (513,654 | ) |
|
| 874,704 |
|
Loss on convertible debt |
|
| 628,586 |
|
|
| - |
|
Debt discount amortization |
|
| 31,977 |
|
|
| - |
|
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
Prepaids expenses and deposits |
|
| (49,000 | ) |
|
| - |
|
Accounts payable and accrued liabilities |
|
| 29,330 |
|
|
| 13,110 |
|
Accrued liabilities – related party |
|
| 38,232 |
|
|
| 96,254 |
|
Net Cash Used in Operating Activities |
|
| (210,501 | ) |
|
| (179 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from convertible debt |
|
| 210,000 |
|
|
| - |
|
Net Cash Provided by Financing Activities |
|
| 210,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash |
|
| (501 | ) |
|
| (179 | ) |
Cash at Beginning of Period |
|
| 3,066 |
|
|
| 260 |
|
Cash at End of Period |
| $ | 2,565 |
|
| $ | 81 |
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
| $ | - |
|
| $ | - |
|
Income taxes |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activity: |
|
|
|
|
|
|
|
|
Common stock issued for conversion of debt |
| $ | 107,442 |
|
| $ | - |
|
Promissory note issued to intangible assets |
| $ | 151.880 |
|
| $ | - |
|
Liability incurred for asset purchase |
| $ | 6,367,227 |
|
| $ | - |
|
Warrants issued |
| $ | 57,499 |
|
| $ | - |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-18 |
| Table of Contents |
CRUZANI, INC.
(FORMERLY US HIGHLAND, INC.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(UNAUDITED)
NOTE 1 – SUMMARY OF BUSINESS AND BASIS OF PRESENTATION
Organization and Business
Cruzani, Inc. (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 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. was a recreational power sports Original Equipment Manufacturer (“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 June 29, 2018, the Company filed Amended and Restated Articles of Incorporation with the State of Nevada to change its name to Cruzani, Inc. Consistent with the Company’s new name, the Company changed the composition of its business direction. Supreme Sweets Acquisition Corp., a subsidiary of the Company, was renamed Oventa, Inc. (“Oventa”). Oventa operates in a 39,000 sq. foot, commercial bakery located in Toronto, Ontario, Canada, which was established in March 2015 by Mario Parravano and Barbara Parravano (collectively, the “Founders”). The Founders have been a successful and innovative force in the baked goods industry since the early 1980’s. Oventa is operating and ideally situated in west-end Toronto at the junction of two major Toronto highways, fronting the Q.E.W. corridor, 10 minutes from downtown Toronto, and only 10 minutes from Pearson International Airport. Oventa’s high speed bread, pastry and donut lines, spiral and walk-in coolers and freezers, tunnel, revolving, and deck ovens, and equipment to produce virtually any bakery or snack product are in place and operational. There is considerable room to expand on the property. Oventa services local coffee shops and manufactures private label products for customers in Canada and the U.S.
Oventa will be the second, major operational focus of the Company. The asset acquisition of Supreme Sweets and subsequent re-branding as Oventa is in addition to the acquisition of TruFood Provisions Co., which is also being rebranded and will launch in 2019.
Basis of Presentation
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, USH Distribution Corp., Powersports Brand Alliance, Inc., and Supreme Sweets Acquisition Corp. All significant intercompany transactions and balances have been eliminated.
The unaudited 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 prior year amounts have been reclassified to conform to current year presentation.
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.
These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed on April 4, 2018 (the “2017 Annual Report”).
| F-19 |
| Table of Contents |
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
Long-Lived Assets
- -----------------
Equipment is stated at cost and depreciated over a useful life of 7
years. Expenditures for maintenance and repairs are charged to
operating expenses as incurred. When equipment is retired or otherwise
disposed of, the cost of the asset and the related accumulated
depreciation are removed from the accounts with the resulting gain or
loss being reflected in results of operations.
Intangible assets include intellectual property rights which were valued
at the date of acquisition by management and amortized over 15 years.
Management assesses the recoverability of equipment and intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from its future
62
Harcom Productions Inc.
Notes to Financial Statements
For
Recently issued accounting pronouncements
The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
undiscounted cash flows. If it is determined that an impairmentCompany has occurred, an impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its estimated fair value.
New Accounting Standards
Recent Accounting Pronouncements
- ---------------------------------
In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on
estimating fair value when market activity has decreased and on
identifying transactionsimplemented all new accounting pronouncements that are in effect. These pronouncements did not orderly. Additionally, entities
are required to disclose in interimhave any material impact on the financial statements unless otherwise disclosed, and annual periods the inputs and
valuation techniques used to measure fair value. This FSP is effective
for interim and annual periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS 157-4 willbelieve that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial conditionposition or results of operation.
In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not
Active," ("FSP FAS 157-3"), which clarifies application of SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance,
including prior periods for whichoperations.
Going Concern
The accompanying consolidated financial statements have not been issued. The adoption of FSP FAS 157-3 had no impact on the Company's
results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8,
"Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interestsprepared in Variable Interest Entities." This
disclosure-only FSP improves the transparency of transfers of financial
assets and an enterprise's involvementconformity with variable interest entities,
including qualifying special-purpose entities. This FSP is effective
for the first reporting period (interim or annual) ending after December
15, 2008, with earlier application encouraged. The Company adopted this
FSP effective January 1, 2009. The adoptiongenerally accepted accounting principles which contemplate continuation of the FSP had no impact on
the Company's results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employers'
Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-
1"). FSP FAS 132(R)-1 requires additional fair value disclosures about
employers' pensionCompany as a going-concern basis. The going concern basis assumes that assets are realized, and postretirement benefit plan assets consistent
with guidance contained in SFAS 157. Specifically, employers will be
required to disclose information about how investment allocation
decisionsliabilities are made, the fair value of each major category of plan assets
and information about the inputs and valuation techniques used to
develop the fair value measurements of plan assets. This FSP is
63
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
effective for fiscal years ending after December 15, 2009. The Company
does not expect the adoption of FSP FAS 132(R)-1 will have a material
impact on its financial condition or results of operation.
In September 2008, the FASB issued exposure drafts that eliminate
qualifying special purpose entities from the guidance of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and FASB Interpretation 46 (revised
December 2003), "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51," as well as other modifications. While
the proposed revised pronouncements have not been finalized and the
proposals are subject to further public comment, the Company anticipates
the changes will not have a significant impact on the Company's
financial statements. The changes would be effective March 1, 2010, on
a prospective basis.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP EITF
03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and
therefore need to be includedextinguished in the computationordinary course of earnings per share
under the two-class method as described in FASB Statement of Financial
Accounting Standards No. 128, "Earnings per Share." FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning on
or after December 15, 2008 and earlier adoption is prohibited. We are
not required to adopt FSP EITF 03-6-1; neither do we believe that FSP
EITF 03-6-1 would have material effect on our consolidated financial
position and results of operations if adopted.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-
and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies
how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement of premium revenue and claims
liabilities. This statement also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163 is effective for
fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company's
financial position, statements of operations, or cash flowsbusiness at this
time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 162, "The Hierarchy of Generally Accepted Accounting
Principles". SFAS No. 162 sets forth the level of authority to a given
accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative
category will prevail. SFAS No. 162 will become effective 60 days after
64
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA
Professional Standards. SFAS No. 162 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133. This standard
requires companies to provide enhanced disclosures about (a) how and why
an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial
performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has
not yet adopted the provisions of SFAS No. 161, but does not expect it
to have a material impact on its consolidated financial position,
results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107
(SAB 107), in developing an estimate of expected term of "plain vanilla"
share options in accordance with SFAS No. 123 (R), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined
estimates of expected term. At the time SAB 107 was issued, the staff
believed that more detailed external information about employee exercise
behavior (e.g., employee exercise patterns by industry and/or other
categories of companies) would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it would not
expect a company to use the simplified method for share option grants
after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available
by December 31, 2007. Accordingly, the staff will continue to accept,
under certain circumstances, the use of the simplified method beyond
December 31, 2007. The Company currently uses the simplified method for
"plain vanilla" share options and warrants, and will assess the impact
of SAB 110 for fiscal year 2009. It is not believed that this will have
an impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements-an amendment of ARB No. 51. This
statement amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling
65
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equityamounts disclosed in the consolidated financial statements. Before this statement was issued, limited guidance existed
for reporting noncontrolling interests. As a result, considerable
diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as
liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption
is prohibited. The effective date of this statement is the same as that
of the related Statement 141 (revised 2007). The Company will adopt this
Statement beginning March 1, 2009. It is not believed that this will
have an impact on the Company's consolidated financial position, results
of operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in
Statement 141. This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree; (b) recognizes and
measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement applies
prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. An entity may not apply it before that
date. The effective date of this statement is the same as that of the
related FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The Company will adopt this statement beginning
March 1, 2009. It is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Liabilities-Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. This
option is available to all entities. Most of the provisions in FAS 159
are elective; however, an amendment to FAS 115 Accounting for Certain
Investments in Debt and Equity Securities applies to all entities with
available for sale or trading securities. Some requirements apply
differently to entities that do not report net income. SFAS No. 159 is
effective as of the beginning of an entity's first fiscal year that
66
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes
that choice in the first 120 days of that fiscal year and also elects to
apply the provisions of SFAS No. 157 Fair Value Measurements. The
Company will adopt SFAS No. 159 beginning March 1, 2008 and is currently
evaluating the potential impact the adoption of this pronouncement will
have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement
does not require any new fair value measurements. However, for some
entities, the application of this statement will change current
practice. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. Earlier application is encouraged, provided
that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period
within that fiscal year. The Company will adopt this statement March 1,
2008, and it is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
Reclassification
- ----------------
Certain reclassifications may have been made in prior years' financial
statements to conform to classifications used in the current year.
Note 2 - Intangible Assets
The cost to acquire intangible assets in 1999 has been allocated to the
assets acquired according to the estimated fair values and amortized
over a 15 year life using the straight line method. The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby theincurred recurring losses from operations, but as of June 30, 2018 current assets exceed current liabilities by $3,796,054. The Company periodically tests its intangible assets for impairment. Onhas an annual basis, and when there is reasonaccumulated deficit of $75,620,084. The Company’s ability to suspect that their values have
been diminished or impaired, these assets are tested for impairment, and
write-downs will be included in results from operations. No impairment
was identified for the years ended December 31, 2008 and 2007.
67
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
The identifiable intangible assets acquired and their carrying values at
December 31, 2009 and 2008 are:
2009 2008
---- ----
Jingles used in on hold messaging $ 248,247 $ 248,247
Less: Accumulated Amortization (176,012) (155,327)
--------- ---------
Net Intangible Asset $ 72,235 $ 92,920
========= =========
Total amortization expense charged to operations for the quarter ended
December 31, 2009 and 2008 was $4,137 and $4,137 respectively.
Note 3 -Long-term Debt
The long-term debt is a note payable to the former owners, dated July 1,
1999 bearing interest at 6.5% per annum, payable on March 1, 2019. The
balance on the note payable net of current portion on December 31, 2008
was $140,867and on December 31, 2009 it was $131,660.
Note 4 - Due to Related Party
Since 2004, the Company's General Manager has advanced funds to the
Company to purchase materials expensed as costs of goods sold as well as
to occasionally meet payroll obligations. These loans were made through
the use of the General Manager's personal credit cards and personal
loans. As such, the amount of interest accrued is dictated by the
interest rate agreed to through the General Manager's credit agreement.
For the years ended December 31, 2009 and 2008, the net effect of unpaid
advances were $164,070 and $192,808 respectively.
Note 5 - Other Commitments and Contingencies
Lease Agreement
- ---------------
On March 12, 2008, the Company executed a lease agreement. This lease
agreement covers the office space for the Company's headquarters in
Tulsa, Oklahoma includes 3,000 square feet of finished office space
leased for one year beginning on April 1, 2008 and included a deposit of
$1,500. The lease renews annually and the related rental expense was
$15,100 and $24,000, for 2009 and 2008 respectively. Due to economic
conditions, on July 1, 2009, the monthly rent was reduced to $1000 per
month.
68
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 6 - Going Concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern which contemplatesdepends 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 realization of assets and the liquidation of liabilities in the normal
course of business. However the Company has reported net losses of
($108,683) and ($110,099) for the years ended December 31, 2008 and
December 31, 2009 respectively. Without the realization of additional
capital, it would be unlikely for the CompanyCompany’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company's development and marketing efforts.
NOTE 2 – DEPOSITS ON ACQUISITION
On March 8, 2018, the Company entered into a share exchange agreement with TruFood Provisions Co (“TruFood”). Pursuant to an amendment to the share exchange agreement dated March 8, 2018, the Company will exchange 1 billion shares of the Company, and cash, for 100% of the equity of TruFood. It is management's planexpected that all other debt related to complete and execute the operation of TruFood will be retired at or prior to the closing date. As of June 30, 2018, the Company had deposited $124,000 related to this acquisition.
NOTE 3 – ASSET ACQUISITION
On June 30, 2018, Supreme Sweets Acquisition Corp. (n/k/a business
plan in order to supply the needed cash flow.
Note 7 - Subsequent Events
Harcom Productions,Oventa, Inc.), a public company, mergedsubsidiary of the Company, and the Company (collectively, the “Company”) entered into an asset purchase agreement (the “Asset Purchase Agreement”) with U.S. Highland,Supreme Sweets Inc. and 2498411 Ontario, Inc., as sellers (collectively, the “Seller”), pursuant to which in exchange for CAD $200,000 and a twenty percent (20%) interest in Oventa, Inc., the Company agreed to acquire the trade secret assets of Seller upon the terms and subject to the conditions set forth in the Asset Purchase Agreement. The value of the assets recorded is currently an estimate based upon the estimated fair value of the assets acquired under ASC 805-50-25-1. There has been no goodwill or a loss recorded related to the acquisition. The compensation amount is to be paid to Supreme Sweets Inc, is currently recorded as other liabilities. A second closing occurred on July 31, 2018, pursuant to which the Company acquired the furniture, fixtures and equipment of Seller in exchange for CAD $100,000. Seller is engaged in the business of preparing delicious snacks, pastries and baked goods with high quality ingredients for exceptional taste, including low calorie and gluten-free alternatives.
| F-20 |
| Table of Contents |
NOTE 4 – LOANS PAYABLE
Loans payable consist of the following: |
| June 30, 2018 |
|
| December 31, 2017 |
| |||
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. On May 31, 2017, the Company executed a conversion addendum for each of the original loans for $22,000 and $45,000. The terms per the addendum allow the note holder to convert any portion of the principal and accrued interest into shares of common stock at $0.0001 per share. |
| $ | 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 |
|
e) | 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 |
|
f) | 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 |
| $ | - |
|
| $ | - |
|
Above notes are past due as of the issuance of these financial statements.
NOTE 5 – CONVERTIBLE NOTES
a) On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company’s common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. The note is secured against substantially all of the assets of the Company.
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
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.
| F-21 |
| Table of Contents |
During the year ended December 31, 2015, the Company recorded total accretion of $500,000. At June 30, 2018 and December 31, 2017, the carrying value of the note was $500,000.
b) 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 60% 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 February 11, 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 derivative liabilities of $308,492 resulted in a full discount to the note payable of $250,000 and the recognition of $59,492 as additional interest expense.
During the year ended December 31, 2017, the entire balance of the discounts and costs were recognized in full. At June 30, 2018 and December 31, 2017, the carrying value of the notes was $275,000 and $275,000 with unamortized discount of $nil and $0, respectively. These notes are past due as of the issuance of these financial statements, as a result the interest rate increased to 24%.
c) 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 derivative liabilities of $95,047 resulted in a full discount to the note payable of $50,000 and the recognition of $45,047 as additional interest expense.
At June 30, 2018 and December 31, 2017, the carrying value of the notes was $26,200 and $59,400 with unamortized discount of $0 and $0, 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 October 30, 2017, the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds of $25,000. The notes are convertible at any time after September 13, 2018 at a mutually agreed upon conversion price, bearing interest rate at 10% per annum and due on October 30, 2019. Due to these provisions, the embedded conversion options does not currently qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
At June 30, 2018 and December 31, 2017, the carrying value of the note was $25,000 and $25,000, respectively.
e) On November 18, 2017, the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds of $25,000. The notes are convertible at any time after September 13, 2018 at a mutually agree upon conversion price, bearing interest rate at 10% per annum and due on November 30, 2019. Due to these provisions, the embedded conversion options does not currently quality for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
During January 22, 2010 with Harcomand February 2018, the Company received an additional $100,000 under the same terms as the surviving corporationpreciously issued convertible promissory note.
At June 30, 2018 and December 31, 2017, the carrying value of the notes was $125,000 and $25,000, respectively.
f) On March 16, 2018, the Company entered into a convertible promissory note for $36,750, pursuant to which the Company received proceeds of $35,000, net of an original issue discount of fees of $1,750. The note is 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 March 15, 2019. 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 derivative liabilities of $71,305 resulted in a full discount to the note payable of $36,750 and the recognition of $36,305 as a loss on the issuance of a convertible note.
g) May 21, 2018 the Company entered into a securities purchase agreement with US Highland, Inc.L2 Capital, LLC pursuant to which the Company issued and sold a promissory note to the Holder in the aggregate principal amount of up to $568,054. which is convertible into shares of common stock of the Company. The Note accrues interest at a rate of 8% per annum. The aggregate principal amount of up to $568,054.00 consists of a prorated original issuance discount of up to $55,554. and a $12,500 credit to Holder for transactional expenses with net consideration to the Company of up to $500,000 which will be funded in tranches. The maturity date of each tranche funded shall be six months from the effective date of each payment and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees for each tranche, shall be due and payable. The Holder shall have the right at any time to convert all or any part of the funded portion of the Note into fully paid and non-assessable shares of common stock of the Company at the Conversion Price, which is equal to $0.01 per share (the “Fixed Conversion Price”), provided, however, that at any time on or after the occurrence of any Event of Default (as defined therein) under the Note, the Conversion Price shall mean the lesser of the (i) Fixed Conversion Price and (ii) 55% multiplied by the lowest VWAP of the common stock during the thirty trading day (as defined therein) period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete Trading Day prior to the conversion date.
The company received two tranches of funding as of June 30, 2018 for a total outstanding balance, including fees and OID of $123,611.
| F-22 |
| Table of Contents |
NOTE 6 – DERIVATIVE LIABILITIES
The embedded conversion options of the Company’s convertible debentures described in Note 3 contain conversion features that qualify for embedded derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||
Balance at the beginning of the period |
| $ | 409,948 |
|
| $ | 402,881 |
|
Addition of new derivative liabilities |
|
| 656,030 |
|
|
| - |
|
Change in fair value of embedded conversion option |
|
| (445,972 | ) |
|
| 44,084 |
|
Derecognition of derivatives upon settlement of convertible notes |
|
| (284,626 | ) |
|
| (37,017 | ) |
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
| $ | 335,380 |
|
| $ | 409,948 |
|
The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black- Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’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, 2017 |
|
| 335 | % |
|
| 1.39 | % |
|
| 0 | % |
| 0.25 – 2.50 | |
At June 30, 2018 |
| 275.86% – 306.16 | % |
| 1.93%-2.11 | % |
|
| 0 | % |
| 0.25 - .71 | |||
NOTE 7 – WARRANTS
In connection with the issuance of the convertible note with L2 Capital, LLC and funding of the initial tranche of $50,000 on the Note, the Company also issued a common stock purchase warrant to purchase up to 7,638,092 shares of the Company’s common stock pursuant to the terms therein as a commitment fee. At the time that each subsequent tranche under the Note is funded by the Holder in cash, then on such funding date, the warrant shares shall immediately and automatically be increased by the quotient of 100% of the face value of the respective tranche and 110% of the VWAP of the common stock on the Trading Day immediately prior to the funding date of the respective tranche. As of June 30, 2018, the Company had received two $50,000 tranches for which is issued warrants.
The warrants have a variable exercise price per the above and expire in five years. The aggregate fair value of the warrants, which was allocated against the debt proceeds totaled $57,499 based on the Black Scholes Merton pricing model. The fair value was credited to additional paid in capital and debited to debt discount to be amortized over the term of the loan.
| F-23 |
| Table of Contents |
A summary of the status of the Company’s outstanding stock warrants and changes during the periods is presented below:
|
| Shares available to purchase with warrants |
|
| Weighted Average Price |
|
| Weighted Average Fair Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Outstanding, December 31, 2017 |
|
| - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 32,329,203 |
|
| $ | 0.0034 |
|
| $ | 0.0034 |
|
Exercised |
|
| - |
|
| $ | - |
|
| $ | - |
|
Forfeited |
|
| - |
|
| $ | - |
|
| $ | - |
|
Expired |
|
| - |
|
| $ | - |
|
| $ | - |
|
Outstanding, June 30, 2018 |
|
| 32,329,203 |
|
| $ | 0.0034 |
|
| $ | 0.0034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2018 |
|
| 32,329,203 |
|
| $ | 0.0034 |
|
| $ | 0.0034 |
|
Range of Exercise Prices |
| Number Outstanding 6/30/2018 |
|
| Weighted Average Remaining Contractual Life |
| Weighted Average Exercise Price |
| ||
$0.0023 – 0.0071 |
|
| 32,329,203 |
|
| 4.94 years |
| $ | 0.0034 |
|
NOTE 8 – COMMON STOCK
During the six months ended June 30, 2018, the Company issued 170,388,840 shares of common stock to settle $94,257 of principal and $13,185 of accrued interest on its convertible notes.
NOTE 9 – SUBSEQUENT EVENTS
In accordance with ASC 855-140, Subsequent Events, the Company analyzed its operations subsequent to June 30, 2018, through the date the financial statements were available to be issued and has determined that there are no material subsequent events to disclose in these financial statements other than the following.
Subsequent to June 30, 2018 the company issued 108,348,127 shares of common stock for conversion of approximately $69,000 of its convertible debt.
Effective as of July 5, 2018, the Company’s Board of Directors and Majority Stockholder approved and adopted the Amended and Restated Articles of Incorporation of the Company to, (i) change the name of the merged corporation.
| F-24 |
Subject to Completion, Dated September 20, 2018
Prospectus
3,176,381 Shares
Common Share
609,913 common shares on behalf of selling security holders
Prospectus
US Highland, Inc.
June 18, 2010
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS
AND SALES ARE PERMITTED.
Until ______________, 2010, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
72
Stock
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of Directorsthe securities being registered hereunder. The selling stockholders will bear no expenses associated with this offering except for any broker discounts and Officers
Insofarcommissions or equivalent expenses and expenses of the selling stockholders’ legal counsel applicable to the sale of its shares. All of the amounts shown are estimates, except for the Securities and Exchange Commission registration fees.
Item |
| Amount to be paid |
| |
SEC registration fee |
| $ | 41.52 | |
Legal fees and expenses |
|
| 15,000 |
|
Accounting fees and expenses |
|
| 5,000 |
|
Miscellaneous fees and expenses |
|
| 4,958.48 | |
Total |
| $ | 25,000 |
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Nevada law permits a company to indemnify its directors and officers, except for any act of dishonesty. The Company has provided in its bylaws for the indemnification of its officers and directors against expenses actually and necessarily incurred in connection with the defense of any action, suit or proceeding in which they are a party by reason of their status as indemnificationan officer or director, except in cases of negligence or misconduct in the performance of duty.
The Company’s articles of incorporation limit or eliminate the personal liability of its officers and directors for damages resulting from breaches of their fiduciary duty for acts or omissions, except for damages resulting from acts or omissions which involve intentional misconduct, fraud, a knowing violation of law, or the inappropriate payment of dividends in violation of Nevada Revised Statutes.
The above discussion of our bylaws and Nevada law is not intended to be exhaustive and is respectively qualified in its entirety by such bylaws and applicable Nevada law.
To the extent that our directors and officers are indemnified under the provisions contained in our bylaws, Nevada law or contractual arrangements against liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer1933, as provided in the foregoing provisions, or
otherwise, the small business issuer hasamended (the “Securities Act”), we have been advised that in the opinion of the SECSecurities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable. In
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company issued the event thatfollowing securities in the three years preceding the filing of this Registration Statement:
On September 30, 2015, the Company issued an aggregate of 3,381,520 shares of Series A Preferred Stock at a claimfair value of $12,849,776 to settle convertible and promissory notes in the amount of $1,487,000 and accrued interest of $203,760.
On September 18, 2014, February 18, 2015, March 9, 2015, March 31, 2015, May 8, 2015, May 29, 2015 and July 3, 2015, the Company entered into unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $35,000, $20,000, $50,000, $50,000, $65,000, $4,000, and $5,000, respectively. The loans bore interest at 8% per annum compounded annually and were due 1 year after the date of issuance. On September 30, 2015, the Company issued 384,002 shares of Series A Preferred Stock for indemnification against such liabilities,
other thansettlement of $185,000 of notes payable and $7,001 of accrued interest.
On August 26, 2014, December 4, 2014, December 18, 2014, January 29, 2015, August 12, 2015, August 21, 2015, September 1, 2015 and September 15, 2015, the payment byCompany issued unsecured notes payable of $15,000, $20,000, $200,000, $20,000, $20,000, $25,000, $40,000, and $25,000, respectively to a significant shareholder. The notes bore interest at an annual rate of 8% per annum, were uncollateralized, and due 1 year after the small business issuerdate of expenses incurred
or paid byissuance. On September 30, 2015, the Company issued 457,734 shares of Series A Preferred Stock for settlement of $215,000 of notes payable and accrued interest of $13,867.
| II-1 |
The Company issued the following unsecured notes payable to a director, officer or controlling personsignificant shareholder. The notes bore interest at an annual rate of 8% per annum, were uncollateralized, and were due 2 years after the date of issuance. On September 30, 2015, the Company issued 1,353,678 shares of Series A Preferred Stock for the settlement of all of the small
business issuerfollowing $607,000 of notes payable and $69,839 of accrued interest:
On February 11, 2016, the Company issued a convertible promissory note in the successful defenseaggregate principal amount of any action, suit or
proceeding,$137,500 to Adar Bay, LLC, pursuant to which the Company received net proceeds of $118,750. The note is asserted by such director, officer or controlling personconvertible at a price equal to 60% of the lowest trading price of the Company's common stock for the 20 prior trading days, bears interest at 8% per annum and is due on February 11, 2017. The use of proceeds was working capital.
On February 11, 2016, the Company issued a convertible promissory note in connectionthe aggregate principal amount of $137,500 to Union Capital, LLC, pursuant to which the Company received net proceeds of $118,750. The note is convertible at a price equal to 60% of the lowest trading price of the Company's common stock for the 20 prior trading days, bears interest at 8% per annum and is due on February 11, 2017. The use of proceeds was working capital.
On May 17, 2016, the Company issued 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.
On July 13, 2017, the Company 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.
During the three months ended March 31, 2018, the Company issued 55,941,778 shares of common stock to settle $35,159 of principal and $8,380 of accrued interest on its convertible notes.
On May 10, 2018, the Company issued and sold a promissory note to L2 Capital, LLC in the aggregate principal amount of up to $568,054.00 and also issued a Common Stock Purchase Warrant to L2 Capital, LLC for the purchase of up to 7,638,092 shares of common stock.
During the three months ended June 30, 2018, the Company issued 114,447,062 shares of common stock to settle $59,098 of principal and $4,805 of accrued interest on its convertible notes.
As of September 12, 2018, during the three months ended September 30, 2018, the Company issued 133,348,127 shares of common stock to settle $83,040.55 of principal and accrued interest on its convertible notes.
The above issuances are subject to adjustment to reflect the assumed 1-for-100 reverse stock split of our common stock, which will be effected prior to the effectiveness of this registration statement.
On September 10, 2018, the Company issued 5,000,000 shares of Series C Preferred Stock to its chief executive officer.
On September 10, 2018, the Company issued 125,000 shares of Series D Preferred Stock to L2 Capital.
Except as otherwise noted, the securities being registered,in these transactions were sold in reliance on the small business
issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. US
Highland shall pay the expenses.
SEC Registration Fee $ 266.31
Printing and Engraving Expenses 1,500.00
Legal Fees and Expenses 25,000.00
Accounting Fees and Expenses 30,725.00
Miscellaneous 1,000.00
-----------
TOTAL $ 58,491.00
Item 26. Recent Sales of Unregistered Securities
The registrant sold 609,913 common shares during April and May of
2010 in which the registrant received approximately $774,915 in
paid in capital from the sale of common restricted stock at
approximately $1.25 per share in a private offering.
Name Amount Paid Shares Date
- ---- ----------- ------ ----
Richard Goglia $ 12,500 10,000 4/12/10
Baurus Co. Limited(1) $106,250 85,000 4/10/10
Ingemar Brorsson $208,962.24 167,170 4/16/10
Iron Invest AB(2) $139,000 111,200 4/16/10
Marcus Bjornsson $ 13,835 11,068 4/19/10
Mikael Svenfelt $ 18,039 14,431 4/15/10
Olof Svenfelt $139,000 111,200 4/29/10
73
Richard Goglia $ 12,500 10,000 4/13/10
Ullared Netto AB(3) $ 69,526.67 55,622 4/16/10
WP Intressenter(4) $ 41,493.07 33,194 4/26/10
Beslag & Metall(5) $ 13,809 11,047 4/14/10
(1) An unaffiliated entity controlled by Bjorn Ohlsen. The entity is
neither a registered broker-dealer nor an affiliate of registered
broker-dealers.
(2) An affiliated entity controlled by Mats Malmberg, an officer and a
director of the registrant. The entity is neither registered broker-
dealer nor an affiliate of registered broker-dealers.
(3) An unaffiliated entity controlled by Frank Gunnarsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(4) An unaffiliated entity controlled by Christer Wagenius. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(5) An unaffiliated entity controlled by Marcus Bjornsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
On May 31, 2010, Lemon Tree, an entity controlled by Chase Bales, an
officer and director of the registrant gifted 250,000 common shares to
Jack P. Larrabee, II and 250,000 common shares to KTM Capital, LLC, an
entity controlled by James Holland, a non-affiliate.
All of the above securities were issued pursuant to an exemption from registration underprovided in Section 4(2)4(a)(2) of the Securities Act for transactions not involving any public offering. Each of 1933 to
sophisticated investors.
Item 27. Exhibits
INDEX TO EXHIBITS Exhibit Numberthe persons acquiring the foregoing securities was an accredited investor (as defined in Rule 501(a) of Regulation D) and Identification of Exhibit
(3) Articles of Incorporation, By-Lawsconfirmed the foregoing and Stock Option Plan
(i) Articles of Organization asacknowledged, in writing, that the securities must be acquired and held for investment. All certificates evidencing the shares sold bore a Limited Liability Company on
February 5, 1999 under the name The Powerhouse, L.L.C.
incorporated by reference to Form SB-2 filed on December 27, 2006.
(ii) Articles of Amendment filed on February 26, 1999 incorporated by
reference to Form SB-2 filed on December 27, 2006.
(iii) Articles of Conversion filed November 9, 2006 incorporated by
reference to Form SB-2 filed on December 27, 2006.
(iv) Articles of amendment filed November 29, 2006 to the certificate
of incorporation incorporated by reference to Form SB-2 filed on
December 27, 2006.
(v) Articles of Merger filed on January 25, 2010.
74
(vi) Bylaws incorporated by reference to Form SB-2 filed on December
27, 2006
(5) Opinion of Jody M. Walker, Attorney At Law(2)
(10) Material Contracts
(i) Asset purchase agreement dated December 21, 2009 incorporated by
reference to Form 8-K filed January 7, 2010
(ii) Transfer and assumption of liabilities agreement dated December
21, 2009 incorporated by reference to Form 8-K filed January 7,
2010
(iii) Convertible debenture dated December 21, 2009 incorporated by
reference to Form 8-K filed January 7, 2010
(iv) Highland Group AB and US Highland, Inc. IP Assignment
Agreement dated March 31, 2010 incorporated by reference to
Form 10-Q for the quarter ended March 31, 2010 filed May
14, 2010
(v) ATK of Oklahoma and US Highland Asset Purchase Agreement
dated March 31, 2010 incorporated by reference to Form 10-Q
for the quarter ended March 31, 2010 filed May 14, 2010
(vi) Black Widow ATV Works and US Highland Asset Purchase
Agreement dated March 31, 2010 incorporated by reference to
Form 10-Q for the quarter ended March 31, 2010 filed May
14, 2010
(vii) RSGA and US Highland Asset Purchase Agreement dated March
31, 2010 incorporated by reference to Form 10-Q for the
quarter ended March 31, 2010 filed May 14, 2010
(viii)Agreement between Lemon Tree Financial Group, LLC and US
Highland dated May 31, 2010
(11) Statement of Computation of Per Share Earnings This Computation
appearsrestrictive legend. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith. The proceeds from these sales were used for general corporate purposes.
Item 16. Exhibits and Financial Statements.
(21) SubsidiariesStatement Schedules.
(a) Exhibits.
The Registrant has filed the exhibits listed on the accompanying Exhibit Index of this Registration Statement.
(b) Financial Statement Schedules.
All financial statement schedules are omitted because the registrant. None
(23)(i) Consent of Certified Public Accountants
(23)(ii) Consent of Jody M. Walker, Attorney At Law, includedinformation called for is not required or is shown either in Exhibit 5
74
Item 28. Undertakings
(a) the financial statements or in the notes thereto.
| II-2 |
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1)
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Sectionsection 10(a)(3) of the Securities Act;
Act of 1933;
ii. ReflectTo reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or together,in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered if(if the total dollar value of securities offered would not exceed that which was registeredregistered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC in accordance withCommission pursuant to Rule 424(b) of this chapter, if, in the aggregate, the changes in volume and price represent no more than a 20%20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
iii. IncludeTo include any additional or changed material oninformation with respect to the plan of distribution.
(2)distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDEbona fide offering thereof.
(3)thereof;
3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities
Act to any purchaser in the initial distribution of the securities, the
undersigned small business issuer will be a seller to the purchaseroffering; and
will be considered to offer or sell such securities to such purchaser:
i. Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed
pursuant to Rule 424 (section 230.424 of this chapter);
ii. Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned small business issuer or used or
referred to by the undersigned small business issuer;
iii. The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned small
business issuer or its securities provided by or on behalf of the
undersigned small business issuer; and
iv. Any other communication that is an offer in the offering made
by the undersigned small business issuer to the purchaser.
75
(5)
4. That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
i. If US Highland is relying on Rule 430B (230.430B of this
chapter):
A. Each prospectus filed by US Highland pursuant to Rule 424(b) (3)
shall be deemed to be part of the registration statement as of the date
the filed prospectus was deemed part of and included in the registration
statement; and
B. Each prospectus filed by US Highland pursuant to Rule 424(b) (2), (b)
(5), or (b) (7) as part of the registration statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a) (1) (i),
(vii), or (x) for the purpose of providing the information required by
section 10(a) of the Securities Act of 1933 shall be deemed to be part
of the first contract of sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration
statement will, as to a purchaser, with a time of contract of sale prior
to such effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such effective date; or
ii. If US Highland is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of thea registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
SIGNATURES
5. That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
i. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
| II-3 |
EXHIBIT INDEX
Exhibit Number | Title of Document | Location | ||
Incorporated by reference from the current report on Form 8-K filed July 11, 2018. | ||||
Incorporated by reference from Form SB-2 filed on December 27, 2006. | ||||
Incorporated by reference from Exhibit 3.1 to the current report on Form 8-K filed October 9, 2015. | ||||
Incorporated by reference from Exhibit 3.1 to the current report on Form 8-K filed November 23, 2015. | ||||
* | ||||
* | ||||
5.1 | Legal Opinion of Lucosky Brookman LLP | † | ||
Incorporated by reference from the current report on Form 8-K filed March 14, 2018. | ||||
Incorporated by reference from the current report on Form 8-K filed March 22, 2018. | ||||
Form of Promissory Note by and between the Company and holder, dated May 10, 2018 | Incorporated by reference from the current report on Form 8-K filed May 29, 2018. | |||
Form of Stock Purchase Agreement by and between the Company and holder, dated May 10, 2018 | Incorporated by reference from the current report on Form 8-K filed May 29, 2018. | |||
Form of Warrant Agreement by and between the Company and Holder, dated May 10, 2018 | Incorporated by reference from the current report on Form 8-K filed May 29, 2018. | |||
Incorporated by reference from the current report on Form 8-K filed July 11, 2018. | ||||
Incorporated by reference from the current report on Form 8-K filed August 6, 2018. | ||||
Equity Purchase Agreement, dated as of July 23, 2018, by and between the Company and L2 Capital, LLC | Incorporated by reference from the current report on Form 8-K filed August 6, 2018. | |||
* | ||||
* | ||||
23.2 | Consent of Lucosky Brookman LLP (included in Exhibit 5.1) | * | ||
101.INS* | XBRL Instance Document** | ** | ||
101.SCH* | XBRL Extension Schema Document** | ** | ||
101.CAL* | XBRL Extension Calculation Linkbase Document** | ** | ||
101.DEF* | XBRL Extension Definition Linkbase Document** | ** | ||
101.LAB* | XBRL Extension Labels Linkbase Document** | ** | ||
101.PRE* | XBRL Extension Presentation Linkbase Document** | ** |
________
† To be filed by amendment.
* Filed herewith.
** In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
| II-4 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, US
Highland, Inc. certifies that itthe Registrant has reasonable grounds to believe that
it meets all of the requirements of filing on Form S-1 and authorizedduly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mounds,Atlanta, State of OklahomaGeorgia, on the 18th day of
June 2010.
US Highland, Inc.
/s/Mats Malmberg
- ------------------------------
By: Mats Malmberg, President
September 20, 2018.
CRUZANI, INC. | |||
By: | /s/ Everett M. Dickson | ||
Everett M. Dickson Chief Executive Officer and Chief Financial Officer (Principal Executive and Financial Officer) | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,1933, this reportregistration statement has been signed below by the following persons on
behalf of the Corporation and in the capacities and on the dates indicated.
/s/Steven Moel CEO June 18, 2010
- -------------------
/s/Mats Malmberg Director June 18, 2010
- -------------------
/s/Chase Bales COO/Director June 18, 2010
- -------------------
/s/Damian Riddoch CFO/Principal Financial
- ------------------- Officer June 18, 2010
Signature | Title | Date | ||
/s/ Everett M. Dickson | Chief Executive Officer, Chief Financial Officer and Sole Director | September 20, 2018 | ||
Everett M. Dickson | (Principal Executive and Financial Officer) |
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