10-Q

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 June 30, 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

(Registrant’s 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 registrant’s common stock, par value $0.01 per share, as of November 7, 2011: 22,513,178 shares.

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US Highland, Inc.

FORM 10-Q

For the quarterly period ended June 30, 2011

INDEX

PART I – FINANCIAL INFORMATION

	Page
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	23

3

PART I

Item I – Financial Statements

US Highland Inc.

Balance Sheet

June 30, 2011 and 2010

	2011	2010
	(Unaudited)	(Unaudited)
Assets
Current Assets:
Cash	$          348	$     68,067
Accounts Receivable	169,896	35,061
Inventory	1,032,414	3,541,342
Prepaid Expense	-	14,075
Total Current Assets	1,202,658	3,658,545
Property and Equipment
Vehicle	-	20,750
Furniture and Fixtures	46,303	81,108
Tooling	353,065	350,415
Production Equipment	4,806	4,806
Leasehold Improvements	204,255	188,468
Accumulated Depreciation	(43,831)	(5,168)
Total Fixed Assets	564,598	640,379
Other Assets:
Long-term Notes Receivable	-	250,000
Goodwill	143,820	164,820
Deposits	1,339	2,005
Total Other Assets	145,159	416,825
Total Assets	$1,912,415 ========	$4,715,749 ========

The accompanying notes are an integral part of these financial statements.

4

US Highland Inc.

Balance Sheet

June 30, 2011 and 2010

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable	$  546,505	$  118,575
Current Portion of Long-term Debt	-	-
Escrow Account	25,000	25
Unearned Revenue	20,000	-
Accrued Liabilities	16,831	2,769
Total Current Liabilities	608,336	146,344
Long-term Liabilities:
Notes Payable	10,000	-
Long-term Debt	-	30,577
Total Long-term Debt	10,000	30,577
Deferred Income Taxes	8,386	8,386
Total Liabilities	626,722	185,307
Stockholders' Equity:
Common Stock, 100 million shares     authorized, par $0.01.  22,513,178     issued 2011, 20519,926 issued 2010	225,132	100,000
Paid in Capital	5,737,552	4,907,283
Retained Earnings	(3,792,991)	407,189
Treasury Stock	(884,000)	(884,000)
Total Stockholders' Equity	1,285,693	4,530,472
Total Liabilities and Stockholders' Equity	$1,912,415 ========	$4,715,779 ========

The accompanying notes are an integral part of these financial statements

5

US Highlands Inc.

Statements of Operations and Retained Earnings

For the Periods Ended June 30, 2011 and 2010

	Three Months Ended		Six Months Ended
	6/30/11	6/30/10	6/30/11	6/30/10
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
Revenue:
Sales	$                 -	$  601,133	$                -	$1,256,630
Cost of Goods Sold	-	138,819	-	320,402
Gross Profit	-	462,314	-	936,228
Operating Expense:
General and Administrative	26,073	251,875	112,023	405,842
Racing	-	1,066	-	-
Research and Development	-	68	-	-
Selling	-	81,379	-	172,363
Depreciation	16,256	-	32,511	-
Total Operating Expense	42,329	334,388	144,534	578,205
Operating Income	(42,329)	127,926	(144,534)	358,023
Other Income (Expense):
Net gain or (Loss) on Asset Sale	(4,516)	-	(4,516)	-
Accrued Federal and State Tax	-	-	2,754	-
Interest Income	-	73	6	176
Interest Expense	(543)	(555)	(2,368)	(1,135)
Total Other Income (Expense)	(5,059)	(482)	(4,124)	(959)
Income Before Provision for      Income Taxes	(47,388)	127,444	(148,658)	357,064
Provision for Income Taxes	-	-	-	122,233
Net Income	$     (47,388)	$    86,643	$  (148,658)	$   234,831
	=========	========	=========	========
Retained Earnings
Beginning of Period	(3,745,603)	192,428	(3,644,333)	47,099
End of Period	$(3,792,991) =========	$ 279,071 =======	$(3,792,991) =========	$   281,930 ========

The accompanying notes are an integral part of these financial statements

6

US Highland Inc.

Statement of Cash Flows

For the Periods Ended June 30, 2011 and 2010

	6/30/11	6/30/10
	(unaudited)	(unaudited)
Cash Flows from Operating Activities
Net Income (Loss)	$(47,387)	$  234,831
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	16,256	-
(Increase) decrease in accounts receivable	-	207.683
(Increase) decrease in inventories	-	(44,981)
(Increase) decrease in prepaid assets	-	(14,075)
Increase (decrease) in accounts payable	26,207	(155,932)
Increase (decrease) in current portion of long term debt	(8,920)	-
Increase (decrease) in accrued expenses	-	-
Net Cash Provided by (used in) Operating Activities	(13,844)	227,526
Cash Flows From Investing Activities:
Property and Equipment (Purchases) Dispositions	39,855	(194,841)
Accumulated Depreciation	(10,046)	-
(Increase) decrease in Deposits	-	122
Increase (decrease) in Net Purchase Investments	-	(20,030)
(Increase) decrease in long term receivables	-	-
Net cash provided by (used in) investing activities	$  29,809	$(214,749)

7

US Highland Inc.

Statement of Cash Flows

For the Periods Ended June 30, 2011 and 2010

Cash Flows From Financing Activities:
Issuance of common stock	$            -	$           -
Proceeds from long-term debt	-	-
Repayment of related party debt	-	-
Repayment of long-term debt	(17,409)	(2,077)
Additional paid-in capital	-	-
Treasury stock (purchase) sale	-	-
Net cash provided by (used in) financing activities	(17,409)	(2,077)
Increase (Decrease) in Cash	(1,444)	10,700
Cash and cash equivalents: Beginning of period	1,792	57,367
Cash and cash equivalents: End of period	$        348	$  68,067
Supplemental disclosures:
Non-cash investing and financing activities interest paid	- =======	555 =======

The accompanying notes are an integral part of the interim financial statements

8

US Highland, Inc.

Notes to Financial Statements

For The Three and Six Months Ended June 30, 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.

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US Highland, Inc.

Notes to Financial Statements

For The Three and Six Months Ended June 30, 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 and Six Months Ended June 30, 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 and Six Months Ended June 30, 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 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.  

12

US Highland, Inc.

Notes to Financial Statements

For The Three and Six Months Ended June 30, 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 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 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 and Six Months Ended June 30, 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 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.  

14

US Highland, Inc.

Notes to Financial Statements

For The Three and Six Months Ended June 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies (continued)

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, 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.  

15

US Highland, Inc.

Notes to Financial Statements

For The Three and Six Months Ended June 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies (continued)

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 acquire; (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 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 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.

16

US Highland, Inc.

Notes to Financial Statements

For The Three and Six Months Ended June 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies (continued)

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 - Long-term Debt

The Company does not have any long-term debt.

Note 3 - Other Commitments and Contingencies

Lease Agreement

Manufacturing operations are not expected to commence until the 4th quarter of 2011.  The Company has no lease obligation at this time.

Note 4 – Subsequent Event

The Company has delayed its USA based manufacturing until appropriate working capital has been procured to insure the successful launch of the manufacturing operations.  Ongoing negotiations for the required capital are underway with an expected completion in the third quarter of 2011.

17

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General Overview

The following Management’s 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. Management’s 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 Company’s 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 Company’s financial results, are included herein and in the Company’s 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 existing cash and our ability to borrow cash or obtain equity investment when needed from a number of related parties.

18

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 June 30, 2011 and 2010

Net Loss:

Net loss for the three months ended June 30, 2011 was $(47,388), which is higher than expected for the period.  

Comparatively, net income for the three months ended June 30, 2010 was $86,643.  The Company expects to begin generate consistent revenues in second quarter 2012 after production startup.

Operating Expenses:

Operating expenses for the three months ended June 30, 2011 totaled $42,329.  Operating expenses are anticipated to be minimal until fourth quarter 2011 when full manufacturing ramp-up is anticipated to begin

Operating expenses for the three months ended June 30, 2010 totaled $334,388.  Operating expenses are anticipated to be minimal until fourth quarter 2011 when full manufacturing ramp-up is anticipated to begin

Revenues:

During the three months ended June 30, 2011 and 2010, the Company had no revenues.

Manufacturing of powerplants is planned for first quarter of 2012. 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 Company’s 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 three months ended June 30, 2011 was $0.00.  Comparatively, for the three months ended June 30, 2010, cost of goods sold was $138,819.  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 Six Months Ended June 30, 2011 and 2010

Net Loss:

Net loss for the six months ended June 30, 2011 was $(144,534), which is higher than expected for the period.  Comparatively, net income for the six months ended June 30, 2010 was $578,205.  The Company expects to begin generate consistent revenues in second quarter 2012 after production startup.

19

Operating Expenses:

Operating expenses for the six months ended June 30, 2011 totaled $144,534.  Operating expenses are anticipated to be minimal until fourth quarter 2011 when full manufacturing ramp-up is anticipated to begin

Operating expenses for the six months ended June 30, 2010 totaled $578,205.  Operating expenses are anticipated to be minimal until fourth quarter 2011 when full manufacturing ramp-up is anticipated to begin

Revenues:

During the three months ended June 30, 2011 and 2010, the Company had no revenues.

Manufacturing of powerplants is planned for the first quarter of 2012. 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 Company’s 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 six months ended June 30, 2011 was $0.00.  Comparatively, for the six months ended June 30, 2010, cost of goods sold was $320,402.  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.

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 June 30, 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.

20

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 June 30, 2011.  Based on this evaluation, our chief executive officer and chief principal financial officer have concluded such controls and procedures to be effective as of June 30, 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 Commission’s 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 issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

21

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

101.INS**   XBRL Instance Document

101.SCH**   XBRL Taxonomy Extension Schema Document

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**   XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**   XBRL Taxonomy Extension Label Linkbase Document

101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document

*  Filed herewith

**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

22

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.

Dated: November 7, 2011

/s/John Fitzpatrick

-------------------------        

John Fitzpatrick

Chief Executive Officer

Chief Financial Officer

23

EX-31

               302 CERTIFICATION

I, John Fitzpatrick, certify that:

         1. I have reviewed this quarterly report for the period ended June 30, 2011 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. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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, our 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

         5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's 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 controls over financial reporting.

Date: November 7, 2011             /s/John Fitzpatrick

                                   ----------------------------

                                   John Fitzpatrick

                                   Chief Executive Officer

                                   Chief Financial Officer

EX-32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of US Highland, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Fitzpatrick, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

            (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

            (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/John Fitzpatrick

-----------------------------

John Fitzpatrick

Chief Executive Officer

Chief Financial Officer

November 7, 2011

XML

US Highland Inc. Statements of Operations and Retained Earnings (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Sales	$ 1,256,630	$ 601,133		$ 1,256,630
Cost of Goods Sold	320,402	138,819		320,402
Gross Profit	936,228	462,314		936,228
General and Administrative	26,073	251,875	112,023	405,842
Racing	1,066	1,066
Research and Development	68	68
Selling	172,363	81,379		172,363
Depreciation	16,256		32,511
Total Operating Expense	42,329	334,388	144,534	578,205
Operating Income	(42,329)	127,926	(144,534)	358,023
Net Gain or (Loss) on Asset Sale	(4,516)		(4,516)
Accrued Federal and State Tax	2,754		2,754
Interest Income	176	73	6	176
Interest Expense	(543)	(555)	(2,368)	(1,135)
Total Other Income (Expense)	(5,059)	(482)	(4,124)	(959)
Income Before Provision for income Taxes	(47,388)	127,444	(148,658)	357,064
Provision for Income Taxes	122,233			122,233
Net Income (Loss)	234,831	86,643	(148,658)	234,831
Beginning of Period	(3,745,603)	192,428	(3,644,333)	47,099
End of Period	$ (3,792,991)	$ 279,071	$ (3,792,991)	$ 281,930

XML

US Highland Inc. Statement of Cash Flows (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2011
Net Income (Loss)	$ 234,831	$ (148,658)
Depreciation	16,256	32,511
(Increase) decrease in accounts receivable	208
(Increase) decrease in inventories	(44,981)
(Increase) decrease in prepaid assets	(14,075)
Increase (decrease) in accounts payable	(155,932)
Increase (decrease) in current portion of long term debt	(8,920)
Net Cash Provided by (used in) Operating Activities	227,526
Property and Equipment (Purchases) Dispositions	(194,841)
Accumulated Depreciation	(10,046)	(10,046)
(Increase) decrease in Deposits	122
Increase (decrease) in Net Purchase Investments	(20,030)
Net cash provided by (used in) investing activities	(214,749)
Repayment of long-term debt	(2,077)
Net cash provided by (used in) financing activities	(2,077)
Cash equivalents	10,700	10,700
Cash and cash equivalents: Beginning of period	68,067
Cash and cash equivalents: End of period	68,067
Non-cash investing and financing activities interest paid	$ 555

XML

Document and Entity Information (USD $)	3 Months Ended
	Jun. 30, 2011
Document and Entity Information
Entity Registrant Name	US Highland, Inc.
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Entity Central Index Key	0001381871
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding	22,513,178
Entity Public Float	$ 0
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	No
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

XML

US Highland Inc. Balance Sheets (USD $)	Dec. 31, 2011		Jun. 30, 2011		Dec. 31, 2010		Jun. 30, 2010
Cash	$ 348		$ 348		$ 68,067		$ 68,067
Accounts Receivable	169,896		169,896		35,061		35,061
Inventory	1,032,414		1,032,414		3,541,342		3,541,342
Prepaid Expense					14,075		14,075
Total Current Assets	1,202,658		1,202,658		3,658,545		3,658,545
Vehicle					20,750		20,750
Furniture and Fixtures	46,303		46,303		81,108		81,108
Tooling	353,065		353,065		350,415		350,415
Production Equipment	4,806		4,806		4,806		4,806
Leasehold Improvements	204,255		204,255		188,468		188,468
Accumulated Depreciation	(43,831)		(10,046)		(5,168)		(5,168)
Total Fixed Assets	564,598		564,598		640,379		640,379
Long-term Notes Receivable					250,000		250,000
Goodwill	143,820		143,820		164,820		164,820
Deposits	1,339		1,339		2,005		2,005
Total Other Assets	145,159		145,159		416,825		416,825
Total Assets	1,912,415		1,912,415		4,715,749		4,715,749
Accounts Payable	546,505		546,505		118,575		118,575
Escrow Account	25,000		25,000		25,000		25,000
Unearned Revenue	20,000		20,000
Accrued Liabilities	16,831		16,831		2,769		2,769
Total Current Liabilities	608,336		608,336		146,344		146,344
Notes Payable	10,000		10,000
Long-term Debt							30,577
Total Long-term Debt	10,000		10,000		30,577		30,577
Deferred Income Taxes	8,386		8,386		8,386		8,386
Total Liabilities	626,722		626,722		185,307		185,307
Common Stock	225,132	[1]	225,132	[1]	100,000	[2]	100,000	[2]
Paid in Capital			5,737,552				4,907,283
Retained Earnings	(3,792,991)		(3,792,991)		407,189		407,189
Treasury Stock	(884,000)		(884,000)		(884,000)		(884,000)
Total Stockholders' Equity	1,285,693		1,285,693		4,530,472		4,530,472
Total Liabilities and Stockholders' Equity	$ 1,912,415		$ 1,912,415		$ 4,715,779		$ 4,715,779

[1] 100 million shares authorized, par $0.01. 22,513,178 issued 2011

[2] 100 million shares authorized, par $0.01. 20,519,926 issued 2010