UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended March 31, 2011
-OR-
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from _______ to ________
Commission File Number 333-139685
US HIGHLAND, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA |
| 73-1556790 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
17424 South Union Avenue, Mounds, OK |
| 74047 |
(Address of principal executive offices) |
| (Zip Code) |
918-296-9799
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] |
| Non-accelerated filer [ ] |
Accelerated filer [ ] |
| Smaller reporting company [x] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
The number of shares outstanding of the registrants common stock, par value $0.01 per share, as of November 1, 2011: 22,513,178 shares.
2
US Highland, Inc.
FORM 10-Q
For the quarterly period ended March 31, 2011
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) |
| 4 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
| 18 |
Item 3. Quantitative and Qualitative Disclosure About Market Risk |
| 20 |
Item 4. Controls and Procedures |
| 20 |
PART II OTHER INFORMATION
Item 1. Legal Proceedings |
| 22 |
Item 1A. Risk Factors |
| 22 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| 22 |
Item 3. Defaults upon Senior Securities |
| 22 |
Item 4. Removed and Reserved |
| 22 |
Item 5. Other Information |
| 22 |
Item 6. Exhibits |
| 22 |
SIGNATURES
3
PART I
Item I Financial Statements
US Highland Inc.
Balance Sheet
March 31, 2011 and 2010
|
| 2011 |
| 2010 |
|
| (unaudited) |
| (unaudited) |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash |
| $ 1,792 |
| $ 11,963 |
Accounts receivable |
| 169,896 |
| 169,896 |
Inventory |
| 1,032,414 |
| 1,032,414 |
Prepaid expense |
| - |
| 18,536 |
Total current assets |
| 1,204,102 |
| 1,232,809 |
|
|
|
| = |
Property and equipment: |
|
|
|
|
Vehicle |
| 39,855 |
| 39,855 |
Furniture and fixtures |
| 46,303 |
| 46,303 |
Tooling |
| 353,065 |
| 353,065 |
Production equipment |
| 4,806 |
| 4,806 |
Leasehold improvements |
| 204,255 |
| 204,255 |
Accumulated depreciation |
| (37,622) |
| (21,366) |
Total fixed assets |
| 610,663 |
| 626,918 |
|
|
|
|
|
Other assets: |
|
|
|
|
Long-term notes receivable |
| - |
| - |
Goodwill |
| 143,820 |
| 143,820 |
Deposits |
| 1,339 |
| 2,086 |
Total other assets |
| 145,159 |
| 145,906 |
|
|
|
|
|
Total assets |
| $1,959,924 |
| $2,005,633 |
|
|
|
|
|
4
US Highland Inc.
Balance Sheet (Continued)
March 31, 2011 and 2010
Liabilities and stockholders' Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
| 520,298 |
| 459,666 |
Current portion of long-term debt |
| 9,021 |
| 8,920 |
Escrow account |
| 25,000 |
| 25,000 |
Unearned revenue |
| 20,000 |
| - |
Accrued liabilities |
| 16,831 |
| 41,183 |
Total current liabilities |
| 591,150 |
| 534,769 |
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
Notes payable |
| 10,000 |
| 10,000 |
Long-term debt |
| 17,307 |
| 18,127 |
Total long-term debt |
| 27,307 |
| 28,127 |
|
|
|
|
|
Deferred income taxes |
| 8,386 |
| 8,386 |
|
|
|
|
|
Total liabilities |
| 626,843 |
| 571,282 |
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
Common stock, 100 million shares authorized, par $0.01. 22,513,178 issued 2011. 20,519,926 issued 2010. |
| 225,132 |
| 225,132 |
Paid in capital |
| 5,737,552 |
| 5,737,552 |
Retained earnings |
| (3,743,603) |
| (3,644,333) |
Treasury stock |
| (884,000) |
| (884,000) |
|
|
|
|
|
Total stockholders' Equity |
| 1,333,081 |
| 1,434,351 |
|
|
|
|
|
Total liabilities and stockholders' equity |
| $1,959,924 |
| $2,005,633 |
The accompanying notes are an integral part of these financial statements
5
US Highlands Inc.
Statement of Operations and Retained Earnings
For the Periods Ended March 31, 2011 and 2010
|
| Three Months Ended |
| ||
|
| 3/31/11 |
| 3/31/10 |
|
|
| (unaudited) |
| (unaudited) |
|
Revenue: |
|
|
|
|
|
Sales |
| - |
| 655,497 |
|
Cost of Goods Sold |
| - |
| 113,825 |
|
Gross Profit |
| - |
| 541,672 |
|
|
|
|
|
|
|
Operating Expense: |
|
|
|
|
|
General and Administrative |
| 85,949 |
| 191,483 |
|
Racing |
| - |
| 50 |
|
Research and Development |
| - |
| - |
|
Selling |
| - |
| 118,407 |
|
Depreciation |
| 16,256 |
| - |
|
Total Operating Expense |
| 102,205 |
| 309,940 |
|
|
|
|
|
|
|
Operating Income |
| (102,205) |
| 231,732 |
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
Net Gain or (Loss) on Asset Sale |
| - |
| - |
|
Accrued Federal and State Tax |
| 2,754 |
| - |
|
Interest Income |
| 6 |
| 104 |
|
Interest Expense |
| (1,825) |
| (580) |
|
Total Other Income (Expense) |
| 935 |
| (476) |
|
|
|
|
|
|
|
Income Before Provision for Income Taxes |
| (101,270) |
| 231,256 |
|
|
|
|
|
|
|
Provision for Income Taxes |
| - |
| 87,315 |
|
|
|
|
|
|
|
Net Income |
| (101,270) |
| 143,941 |
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
Beginning of Period |
| (3,644,333) |
| 48,487 |
|
Retained Earnings |
|
|
|
|
|
End of Period |
| (3,745,603) |
| 192,428 |
|
The accompanying notes are an integral part of these financial statements
6
US Highland Inc.
Statement of Cash Flows
For the Periods Ended March 31, 2011 and 2010
|
| 3/31/11 |
| 3/31/10 |
|
| (unaudited) |
| (unaudited) |
Cash flows from operating activities: |
|
|
|
|
Net income (loss) |
| (101,270) |
| 143,941 |
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
Depreciation |
| 16,255 |
| - |
(Increase) decrease in accounts receivable |
| - |
| (264,918) |
(Increase) decrease in inventories |
| - |
| 758,221 |
(Increase) decrease in prepaid assets |
| 18,535 |
| - |
Increase (decrease) in accounts payable |
| 60,632 |
| 26,417 |
Increase (decrease) in income taxes payable |
| - |
| (33,911) |
Increase (decrease) in accrued expenses |
| (4,352) |
| - |
|
|
|
|
|
Net cash provided by (used in) operating activities: |
| (10,200) |
| 629,750 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Property and Equipment (purchases) dispositions |
| - |
| (44,317) |
Goodwill Harcom (increase) decrease |
| - |
| (230,000) |
(Increase) decrease in deposits |
| 747 |
| (1,025) |
Increase (decrease) in escrow account |
| - |
| (21,000) |
(Increase) decrease in long-term receivables |
| - |
| - |
Net cash provided by (used in) investing activities |
| 747 |
| (296,342) |
|
|
|
|
|
7
US Highland Inc.
Statement of Cash Flows (Continued)
For the Periods Ended March 31, 2011 and 2010
Cash flows from financing activities: |
|
|
|
|
Issuance of common stock |
| - |
| (667,354) |
Proceeds from long-term debt |
| - |
| (2,053) |
Repayment of related party debt |
| - |
| - |
Repayment of long-term debt |
| (718) |
| - |
Additional paid-in capital |
| - |
| - |
Treasury stock (purchase) sale |
| - |
| - |
Net cash provided by (used in) financing activities |
| (718) |
| (669,40)7 |
Net increase in (decrease) in cash and cash equivalents |
| (10,171) |
| (335,999) |
|
|
|
|
|
Cash and cash equivalents: beginning of period |
| 11,963 |
| 393,366 |
Cash and cash equivalents: end of period |
| 1,792 |
| 57,367 |
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
Non-cash investing and financing activities interest paid |
| 1,825 |
| 580 |
The accompanying notes are an integral part of the interim financial statements
8
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(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 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. is a recreational powersports OEM, developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.
Cash and Cash Equivalents
The Company considers highly liquid investments (those readily convertible 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 state of Oklahoma. Income taxes are provided for the tax effects of transactions reported 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. At present US Highland, Inc. management does not feel that there are any doubtful accounts.
9
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
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 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.
10
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
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, cash flows, and stockholders' equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation 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 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 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.
11
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
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.
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.
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 Companys 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 enterprises involvement with variable interest entities, including qualifying special-purpose entities.
12
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
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 Companys 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 Companys 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 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.
13
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
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 Companys 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 PCAOBs amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Companys 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 Activitiesan 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 entitys 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.
14
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
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 Companys consolidated financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statementsan 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 Companys 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 non-controlling interest in the acquiree;
15
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
(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, Non-controlling 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 Companys 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 LiabilitiesIncluding 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 entitys 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.
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US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2011
(Unaudited)
Note 1 Summary of Significant Accounting Policies (continued)
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 Companys 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 - Long-term Debt
The Company does not have any long-term debt.
Note 3 - Other Commitments and Contingencies
Lease Agreement
Current manufacturing operations have been delayed. The Company has no lease obligation at this time.
Note 4 Subsequent Event
The Company has temporarily shut down its USA based manufacturing until appropriate working capital has been procured to insure the successful launch of the manufacturing operations. This is due length of time required for the management reorganization required after the loss of key executives in a plane crash in July of 2010.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview
The following Managements Discussion and Analysis is intended to help the reader understand our company. It is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.
Forward-Looking Statements
Historical results and trends should not be taken as an indication of future operations. Managements statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words may, should, could, believe, expect, anticipate, estimate, project, prospects, or similar expressions. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company include, but are not limited to: changes in economic conditions, legislative/regulatory changes, the availability of capital, interest rates, and the competitive environment. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business; including additional factors that could materially affect the Companys financial results, are included herein and in the Companys other filings with the Securities and Exchange Commission.
The following discussion and analysis should be read in conjunction with the financial statements and notes to financial statements included elsewhere in this quarterly report on Form 10-Q. This report and the financial statements and notes to financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to future economic performance and our current beliefs regarding revenues we might earn if we are successful in implementing our business strategies. The Company does not undertake to update, revise or correct any forward-looking statements.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and our ability to borrow cash or obtain equity investment when needed from a number of related parties.
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Our principal uses of liquidity are paying the limited expenses incurred during management reorganization and launching of manufacturing.
Results of Operations For the Three Months Ended March 31, 2011
Net Loss:
Net loss for the three months ended March 31, 2011 is $101,270, which is higher than expected for the period. The Company expects to begin generate consistent revenues in second quarter 2012 after production startup.
Operating Expenses:
Operating expenses for the period total $85,949. Operating expenses are anticipated to be minimal until fourth quarter 2011 when full manufacturing ramp-up is anticipated to begin
Revenues:
During this quarter, the Company had no revenues.
Manufacturing of powerplants is planned for late 2011. This activity is expected to be a significant source of revenue. In addition to revenues generated from manufacturing of powerplants; manufacturing and sales of the Companys motorcycles, quads, and other products, is planned for formal production startup in late 2012 after the powerplant production ramp up is complete.
Cost of Goods Sold:
Cost of goods sold for the period was $0.00. As the Company completes its production ramp activities and commences selling its manufactured products as anticipated in 2012, cost of goods sold are projected to increase substantially, primarily proportionately to revenues from manufacturing operations.
Results of Operations For the Three Months Ended March 31, 2010
Revenues:
During this quarter the Company 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 Company has generated substantial revenues from engineering development and business development activities.
Cost of Goods Sold:
Cost of goods sold for the period was $181,426. As the Company 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.
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Net Income:
Net income for the period is $196,939, which is higher than expected for the period. The Company 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.
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 Company had $54,777 in cash; however, immediately after the period ended the Company received $762,404 in cash from the sale of restricted stock in a private offering. The Company also has approximately $5.8 million in inventory.
Accounts Receivable:
The Company has total receivables of $370,561.
Total Current Liabilities:
The Company has total current liabilities of $296,846.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for a smaller reporting company
ITEM 4: CONTROLS AND PROCEDURES
During the three months ended March 31, 2011, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2011.
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Based on this evaluation, our chief executive officer and chief principal financial officer have concluded such controls and procedures to be effective as of March 31, 2011 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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PART II
ITEM 1. Legal Proceedings
None
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities:
None
ITEM 4 (Removed and Reserved)
ITEM 5 Other Information:
None
ITEM 6. Exhibits
31 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
32 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/John Fitzpatrick
-------------------------
John Fitzpatrick
Chief Executive Officer
Chief Financial Officer
Dated: November 1, 2011
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302 CERTIFICATION
I, John Fitzpatrick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of US Highland, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures, to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 1, 2011 /s/John Fitzpatrick
----------------------------
John Fitzpatrick
Chief Executive Officer
Principal Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of US Highland, Inc. (the "Company"), hereby certifies, to such officer's knowledge, that the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/John Fitzpatrick
----------------------
John Fitzpatrick
Chief Executive Officer
Principal Financial Officer
November 1, 2011