10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2014

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to___________

Commission file number: 000-54624

US HIGHLAND, INC.

(Exact name of registrant as specified in its charter)

Oklahoma	26-4144571
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1411 N. 105th East Avenue, Tulsa, OK	74116
(Address of principal executive offices)	(Zip Code)

Registrant's Telephone number, including area code: (918)-895-8300

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the part 90 days. Yes  x No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 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  o No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	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  o No  x

Number of the Registrant’s common stock outstanding as of May 20, 2014: 77,727,669 common shares

US Highland, Inc.

Form 10-Q

For the Fiscal Period Ended March 31, 2014

TABLE OF CONTENTS

Part I - Financial Information		3
Item 1.	FINANCIAL STATEMENTS (UNAUDITED).	3
Item 2.	MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS.	17
Item 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.	19
Item 4.	CONTROLS AND PROCEDURES.	19
Part II - Other Information		20
Item 1.	LEGAL PROCEEDINGS.	20
Item 1A.	RISK FACTORS.	20
Item 2.	UNREGISTERD SALE OF SECURITIES AND USE OF PROCEEDS.	20
Item 3.	DEFAULTS UPON SENIOR SECURITIES.	20
Item 4.	MINE SAFETY DISCLOSURES.	20
Item 5.	OTHER INFORMATION.	20
Item 6.	EXHIBITS.	21

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The Company’s unaudited interim condensed consolidated financial statements for the three month period ended March 31, 2014 and for the comparable period in the prior year form part of this quarterly report. They are prepared in accordance with United States generally accepted accounting principles.

US Highland, Inc.

Index to the Unaudited Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets	4
Unaudited Condensed Consolidated Statements of Operations	5
Unaudited Condensed Consolidated Statements of Cash Flows	6
Unaudited Condensed Consolidated Statements of Stockholders' Deficiency	7
Notes to the Unaudited Condensed Consolidated Financial Statements	8

3

US Highland, Inc.

Unaudited Condensed Consolidated Balance Sheets

	March 31, 2014		December 31, 2013
ASSETS
Current Assets
Cash	$	100,555	$	43,044
Inventory		125,222		99,826
Prepaid expenses		43,873		58,520
Total Current Assets		269,650		201,390
Long-term deposits		11,478		11,491
Property and Equipment, net		21,933		24,555
Total Assets	$	303,061	$	237,436
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities
Accounts payable	$	440,330	$	393,617
Accrued liabilities		294,757		258,238
Convertible debentures ($293,244 and $144,362 related parties, respectively)		517,552		351,829
Derivative liabilities		27,793,891		29,430,719
Loans payable ($33,000 and $27,000 related parties, respectively)		121,500		115,500
Total Current Liabilities		29,168,030		30,549,903
Loans Payable ($325,000 and $0 related parties, respectively)		325,000		–
Total Liabilities		29,493,030		30,549,903
Commitments
Stockholders’ Deficiency
Preferred Stock, 3,550,000 shares authorized, par value $0.01; No shares issued and outstanding at March 31, 2014 and December 31, 2013		–		–
Common Stock, 500,000,000 shares authorized, $0.01 par value; 77,727,669shares issued and outstanding at March 31, 2014 and December 31, 2013		777,276		777,276
Common Stock Reserved for Future Issuance		130,961		129,881

Additional Paid-in Capital		54,757,845			54,757,845
Accumulated Deficit		(84,082,551	)		(85,203,969	)
		(28,416,469	)		(29,538,967	)
Treasury Stock, at cost – 58,333 shares at March 31, 2014 and December 31, 2013		(773,500	)		(773,500	)
Total Stockholders’ Deficiency		(29,189,969	)		(30,312,467	)
Total Liabilities and Stockholders’ Deficiency	$	303,061		$	237,436

(The accompanying notes are an integral part of these condensed consolidated financial statements)

4

US Highland, Inc.

Unaudited Condensed Consolidated Statements of Operations

	For the Three Months Ended March 31, 2014			For the Three Months Ended March 31, 2013
Revenue		–		$	–
Operating Expenses
Depreciation		2,622			2,561
General and administrative		159,793			160,596
Professional fees		215,727			3,051,973
Total Operating Expenses		378,142			3,215,130
Operating Loss		(378,142	)		(3,215,130	)
Other Income (Expense)
Interest expense		(190,979	)		(7,657	)
Change in fair value of derivatives		1,690,434			(588,212	)
Other income (expense)		105			2,213
Total Other Income (Expense)		1,499,560			(593,656	)
Net Income (Loss)	$	1,121,418		$	(3,808,786	)
Net Income (Loss) Per Common Share:
-     Basic	$	0.01		$	(0.05	)
-     Diluted	$	(0.00	)	$	(0.05	)
Basic weighted average common shares outstanding		77,727,669			70,793,700
Diluted weighted average common shares outstanding		188,584,669			70,793,700

(The accompanying notes are an integral part of these condensed consolidated financial statements)

5

US Highland, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

	For the Three Months Ended March 31, 2014			For the Three Months Ended March 31, 2013
Operating Activities
Net income (loss)	$	1,121,418		$	(3,808,786	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		2,622			2,561
Accretion expense		165,723			–
Change in fair value of derivative		(1,690,434	)		588,212
Warrants issued for consulting services		–			2,599,801
Shares issuable for interest expense		1,080			2,285
Changes in operating assets and liabilities:
Inventory		(25,396	)		–
Prepaid expenses and deposits		14,660			(25,048	)
Accounts payable and accrued liabilities		136,838			460,576
Net Cash Used in Operating Activities		(273,489)			(180,399)

Financing Activities
Proceeds from issuance of notes payable	331,000	–
Proceeds from issuance of common stock	–	228,500
Net Cash Provided by Financing Activities	331,000	228,500

Increase In Cash		57,511		48,101
Cash - Beginning of Period		43,044		10,498
Cash - End of Period	$	100,555	$	58,599
Non-cash Investing and Financing Activities
Warrants issued to settle debt	$	53,606	$	–
Common stock issued to settle debt		–		21,000

(The accompanying notes are an integral part of these condensed consolidated financial statements)

6

US Highland, Inc.

Unaudited Condensed Consolidated Statement of Stockholders’ Deficiency

								Common
								Stock
						Additional		Reserved		Stock
	Common Stock					Paid-in		For Future		Subscriptions			Accumulated			Treasury
	Shares			Amount		Capital		Issuance		Receivable			Deficit			Stock			Total
		#			$		$		$		$			$			$			$
Balance, December 31, 2012		67,757,669			672,743		51,337,434		114,303		(1,000	)		(53,096,829	)		(773,500	)		(1,746,849	)
Shares issued upon conversion of warrants		5,000,000			50,000		3,202,278		-		-			-			-			3,252,278
Subscriptions received		-			-		-		-		1,000			-			-			1,000
Cancellation of shares issued in error		(483,333	)		-		-		-		-			-			-			-
Shares issued to settle debt		953,333			9,533		38,133		-		-			-			-			47,666
Shares issued for cash		4,500,000			45,000		180,000		-		-			-			-			225,000
Shares issuable in payment of accrued interest		-			-		-		15,578		-			-			–			15,578
Net loss for the year		-			-		-		-		-			(32,107,140	)		–			(32,107,140	)
Balance, December 31, 2013		77,727,669			777,276		54,757,845		129,881		-			(85,203,969	)		(773,500	)		(30,312,467	)
Shares issuable in payment of accrued interest		-			-		-		1,080		-			-			-			1,080
Net income for the period		-			-		-		-		-			1,121,418			-			1,121,418
Balance, March 31, 2014		77,727,669			777,276		54,757,845		130,961		-			(84,082,551	)		(773,500	)		(29,189,969	)

(The accompanying notes are an integral part of these condensed consolidated financial statements)

7

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

1.Summary of Business and Basis of Presentation

Organization and Business

US Highland, Inc. was originally formed as a Limited Liability Company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name Harcom Productions, Inc. On January 25, 2010, Articles of Merger were filed with the state of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc. US Highland, Inc. (the “Company”) is a recreational power sports Original Equipment Manufacturer (“OEM”), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.

Basis of Presentation

The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, US Highlands Electric Inc. All significant intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Certain prior year amounts have been reclassified to conform to current year presentation.

Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended December 31, 2013 included in the Company’s Annual Report on Form 10K filed on May 6, 2014 (the “2013 Annual Report”).

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report.

Going concern

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from operations, and as of March 31, 2014, current liabilities exceed current assets by $28,898,380, and the Company has an accumulated deficit of $84,082,551. The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, and internally generated working capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

8

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

Earnings (Loss) Per Share

	2014								2013
	Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share			Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share
Basic:
Income (loss) attributable to common stock	$	1,121,418			77,727,669	$	0.01		$	(3,808,786	)		70,793,700	$	(0.05	)
Effect of Dilutive Securities:
Convertible Debt Warrants		(713,111	)		89,750,000		(0.01	)		–			–		–
Diluted:
Income (loss) attributable to common stock, including assumed conversions		(790,747	)		21,107,000		(0.00	)		–			–		–
	$	(382,440	)		188,584,669	$	(0.00	)	$	(3,808,786	)		70,793,700	$	(0.05	)

2.  Property and Equipment

Property and equipment consists of the following:

	Useful Life	March 31, 2014			December 31, 2013
Computers and office equipment	3 years	$	15,930		$	15,930
Manufacturing equipment	5 - 10 years		28,408			28,408
			44,338			44,338
Accumulated depreciation			(22,405	)		(19,783	)
Property and equipment, net		$	21,933		$	24,555

Depreciation expense amounted to approximately $2,622 and $2,561 for the three months ended March 31, 2014 and 2013, respectively.

9

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

3.  Loans Payable

		March 31, 2014		December 31,  2013
Loans payable consist of the following:
a)	Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing.	$	25,000	$	25,000
b)	Note payable which is unsecured, non-guaranteed, past due and bears interest at 10% per annum.		7,500		7,500
c)	On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at March 31, 2014, the Company recognized the fair value of 7,500 (December 31, 2013 – 5,500) common shares issuable for interest expense of $121,362 (December 31, 2013 - $120,282), as shares reserved for future issuance. The Company has not yet issued these common shares. As at March 31, 2014, the Company has also accrued interest expense of $21,560 (December 31, 2013 - $19,880).		56,000		56,000
d)	On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly. In addition, the Company is required to issue 5,000 common shares every month until the loan is repaid in full. As of March 31, 2014, the Company recognized the fair value of 35,000 (December 31, 2013 - 20,000) common shares issuable for interest expense of $9,600 (December 31, 2013 - $9,600), as shares reserved for future issuance. The Company has not yet issued these common shares. As at March 31, 2014, the Company has also accrued interest expense of $181 (December 31, 2013 - $125).		27,000		27,000
d)	On January 17, 2014, the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on January 17, 2016.		50,000		–
e)	On January 29, 2014 the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on January 29, 2016.		50,000		–
f)	On February 19, 2014, the Company issued a $25,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on February 19, 2016.		25,000		–
g)	On February 27, 2014, the Company received advances of $6,000 from a director. The amount is unsecured, non-interest bearing and due on demand.		6,000		–
h)	On March 3, 2014, the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on March 3, 2016.		50,000		–
i)	On March 19, 2014, the Company issued a $150,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on March 19, 2016.		150,000		–

Total	$	446,500		$	115,500
Less Short Term		(121,500	)		(115,500	)
Long Term		325,000			-

10

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

4.  Convertible Debentures

a) Effective January 25, 2010, the Company issued a convertible note for $225,000. Pursuant to the terms of the agreement, the loan was unsecured, non-interest bearing, and was due on December 21, 2010. The note was convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 65% of the average of the closing bid prices of the common stock during the 28 trading days prior to the date of the conversion notice and was subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liability of $538,249 resulted in a full discount to the note payable of $225,000 and the recognition of a loss on derivatives of $313,249.

On June 2, 2010, the Company issued 6,386 restricted shares of common stock upon the conversion of the principal amount of $166,667. The fair value of the derivative liability at June 2, 2010, was $266,425 and $197,352 was reclassified to additional paid-in capital upon conversion. During the year ended December 31, 2013, the Company repaid $2,000 of the note. At March 31, 2014 and December 31, 2013, the carrying value of the note was $56,333. The note is in default at March 31, 2014.

b) Effective July 25, 2013, the Company issued a convertible note to secure a demand loan of $75,000. Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand.

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $577,797 resulted in a discount to the note payable of $75,000 and the recognition of a loss on derivatives of $502,797. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013 as the note is due on demand.

c) Effective July 25, 2013, the Company issued a convertible note to secure the demand loan of $45,000. Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand.

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $346,678 resulted in a discount to the note payable of $45,000 and the recognition of a loss on derivatives of $301,678. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013 as the note is due on demand.

d) On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company’s common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amountsare due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. The note is secured against substantially all of the assets of the Company.

The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.

11

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $6,714,279 and warrants of $3,169,531 resulted in a discount to the note payable of $500,000 and the recognition of a loss on derivatives of $9,383,810. During the three months ended March 31, 2014, the Company recorded accretion of $96,999 increasing the carrying value of the note to $189,353.

e) On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 10,197,916 underlying shares of the Company’s common stock. The warrants are exercisable into 8,158,333 common shares of the Company at $0.05 per share and 2,039,583 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $273,700 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.   The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.   Due to the potential adjustments to the conversion rate of the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $5,278,978 and warrants of $2,450,519 resulted in a discount to the note payable of $273,700 and the recognition of a loss on derivatives of $7,455,797. During the three months ended March 31, 2014, the Company recorded accretion of $51,883 increasing the carrying value of the note to $103,891.

f) Effective November 12, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 694,445 underlying shares of the Company’s common stock. The warrants are exercisable into 555,556 common shares of the Company at $0.05 per share and 138,889 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $20,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.   The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.   Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $250,021 and warrants of $145,943, resulted in a discount to the note payable of $20,000 and the recognition of a loss on derivatives of $375,964. During the three months ended March 31, 2014, the Company recorded accretion of $3,997 increasing the carrying value of the note to $10,518.

12

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

g) Effective October 7, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 868,055 underlying shares of the Company’s common stock. The warrants are exercisable into 694,444 common shares of the Company at $0.05 per share and 173,611 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $25,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.   The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.   Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $312,522 and warrants of $182,522 resulted in a discount to the note payable of $25,000 and the recognition of a loss on derivatives of $470,045. During the three months ended March 31, 2014, the Company recorded accretion of $5,009 increasing the carrying value of the note to $12,977.

h) On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 739,584 underlying shares of the Company’s common stock. The warrants are exercisable into 591,667 common shares of the Company at $0.05 per share and 147,917 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $41,300 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.   The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.   Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $547,736 and warrants of $187,531, resulted in a discount to the note payable of $41,300 and the recognition of a loss on derivatives of $693,967. During the three months ended March 31, 2014, the Company recorded accretion of $7,835 increasing the carrying value of the note to $24,480.

13

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

5.  Derivative Liabilities

The embedded conversion options of the Company’s convertible debentures described in Note 4 contain conversion features that qualify for embedded derivative classification. The warrants described in Note 7 also qualify for derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:

	March 31, 2014			December 31, 2013
Balance at the beginning of period	$	29,430,719		$	941,464
Addition of new derivative liabilities (embedded conversion options)		–			14,028,014
Addition of new derivative liabilities (warrants)		53,606			9,209,794
Change in fair value of warrants		(791,739	)		(627,690	)
Change in fair value of embedded conversion option		(898,695	)		9,128,915
Conversion of warrants		–			(3,249,778	)
Balance at the end of the period	$	27,793,891		$	29,430,719

The following table summarizes the change in fair value of derivatives:

	March 31, 2014			March 31, 2013
Change in fair value of derivative liabilities during period	$	(1,690,434	)	$	(588,212	)
Change in fair value of derivatives	$	(1,690,434	)	$	(588,212	)

14

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:

	Expected Volatility			Risk-free Interest Rate			Expected Dividend Yield			Expected Life (in years)
At December 31, 2013		29% - 209	%		0.10% - 0.58	%		0	%		0.58-3.00
At issuance		209	%		0.38	%		0	%		3.00
At March 31, 2014		6% - 200	%		0.4% - 0.93	%		0	%		0.33-2.76

6.  Common Stock

There were no share transactions during the three months ended March 31, 2014.

7.  Stock Purchase Warrants

a) On January 2, 2014, the Company entered into a settlement agreement with a consultant to settle $11,800 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 43,750 shares of common stock at $0.0005 per share for three years.

b) On January 3, 2014, the Company entered into a settlement agreement with a consultant to settle $41,806 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 155,000 shares of common stock at $0.0005 per share for three years.

A summary of the changes in the Company’s common share purchase warrants is presented below:

	Number		Weighted Average Exercise Price		Weighted Average Remaining Term
Balance December 31, 2013		27,214,166	$	0.08	0.70 years
Issued		198,750		0.0005
Balance March 31, 2014		27,412,916	$	0.08	0.46 years

15

US Highland, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

8.  Commitments

a) The Company entered into a consulting agreement dated September 20, 2011 with a director of the Company for services to be provided for a term of three years. The Company agreed to pay $2,250 per month, as well as issue 16,667 shares of common stock. The agreement was subsequently suspended. During the three months ended March 31, 2014, the Company recorded $0 (March 31, 2013 - $10,000) of professional fees.

b) The Company entered into an employment agreement dated October 14, 2011 with an officer of the Company for services to be provided for an initial term of three years, and on a year-to-year basis thereafter. The Company agreed to pay $8,000 per month, increasing to $10,000 per month on the seventh month, and further to $12,000 per month on the tenth month. During the three months ended March 31, 2014, the Company recorded $33,231 (March 31, 2013 - $36,000) of general and administrative expenses.

c) During the year ended December 31, 2012, the Company entered into two leases for the provision of office and warehouse space until April 30, 2015. On April 1, 2013, the Company entered into an amendment to the lease agreements. Pursuant to the amendment, one of the leases was terminated and the other was extended to March 31, 2019. During the three months ended March 31, 2014, the Company recognized $12,788 (2013 - $12,290) of rent expense. The Company’s future minimum lease payments are as follows:

Fiscal year ending December 31, 2014	$	38,864
Fiscal year ending December 31, 2015		53,645
Fiscal year ending December 31, 2016		55,634
Fiscal year ending December 31, 2017		57,631
Fiscal year ending December 31, 2018		59,624
Fiscal year ending December 31, 2019		15,280
	$	280,678

d) The Company issued a $500,000 convertible note on July 25, 2013, of which so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company.

9.  Subsequent Events

a) On April 25, 2014, the Company entered into a note payable with a related party, pursuant to which the Company received proceeds of $25,000. The note bears interest at an annual rate of 8% per annum and is due on April 25, 2016

b) On May 13, 2014, the Company terminated the former CEO and President of the Company’s employment agreement in accordance with its terms. The Company informed the former CEO and President that he would maintain his current position and title with the Company on at-will basis. The former CEO and President informed the Company that he would not be continuing in his position.   Also on May 13, 2014, the Company terminated an employment agreement with an engineer in accordance with its terms. The former employee informed the Company that he will be instituting legal proceedings against the Company in the amount of $68,000 for wrongful termination of the agreement and severance due.   In both instances the Company informed the employees that their respective employment agreements were being terminated in accordance with the terms of such agreements, which provide for 30-day notice prior to the anniversary date of the agreements. Accordingly, the Company was within its rights to send such notices and intends to defend these potential matters vigorously.

16

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forwardlooking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “continue” or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources”. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.

Results of Operations

For the periods ended March 31, 2014 and March 31, 2013

Revenues

The Company had no revenues during the three month periods ended March 31, 2014 and 2013.

Operating Expenses

Operating expenses for the three month period ended March 31, 2014 were $378,142, which was comprised primarily of $159,793 for general and administrative expenses, and $215,727 for professional fees as compared to operating expenses of $3,215,130 for the three month period ended March 31, 2013, which was comprised primarily of $160,596 for general and administrative expenses, and $3,051,973 for professional fees. General and administrative expenses were consistent for the three month periods ended March 31, 2014 and 2013. The decrease in professional fees of $2,836,246 resulted primarily from the issuance of a warrant to a consultant to purchase common shares, which was recorded at a fair value of $2,599,801. The Company did not issue any warrants for services provided during the three months ended March 31, 2014. The only warrants issued during the three months ended March 31, 2014 were to settle amounts owing from the previous fiscal year. The remaining decrease was a result of a decrease in operations.

17

Net Loss

Net income for the three month period ended March 31, 2014 was $1,121,418, compared to net loss of $3,808,786 for the three month period ended March 31, 2013. The income in 2014 includes $190,979 in interest expense as compared to $7,657 in 2013. The increase of $183,322 related to interest recorded for convertible debentures outstanding during the period ended March 31, 2014 that were not outstanding during the comparative period. The Company recognized $165,723 of accretion during the three months ended March 31, 2014 as compared to $0 during the three months ended March 31, 2013. The Company recognized a gain on change in fair value of derivatives of $1,690,434 during the three months ended March 31, 2014 as compared to a loss on change in fair value of derivatives of $588,212 during the three months ended March 31, 2013.

Liquidity and Capital Resources

As of March 31, 2014, we had cash of $100,555 and a working capital deficiency of $28,898,380. The future of the Company is dependent upon its ability to obtain future financing, upon cash generated from our operations and our ability to borrow cash when needed from related parties. During the fiscal period ended March 31, 2014, the Company received $331,000 of proceeds for the issuance notes payable. We estimated that we will require $2,188,000 over the twelve month period ending March 31, 2015. The Company has $980,000 of convertible notes outstanding for which principal and interest is due on July 31, 2014. These notes are further described in Note 4 of the financial statements.

Management believes that our cash balance will not be sufficient to meet our working capital requirements for the next twelve month period. We plan to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirement for the next twelve months primarily through equity and or debt financings. There is no assurance that we will be able to obtain further funds required for our continued working capital requirements.

We cannot be certain that the required additional financing will be available or available on terms favorable to us. We currently do not have any arrangements or commitments in place for any other financings. If additional funds are raised by the issuance of our securities, existing stockholders will experience dilution of their ownership interest. If adequate funds are not available or not available on acceptable terms, we may be unable to fund our operations.

During the three month period ended March 31, 2014, we used $273,489 in cash in operating activities and did not use any cash for investing activities. This compares to the three month period ended March 31, 2013 when we used $180,399 in cash in operating activities. We received proceeds of $331,000 from the issuance of notes payable during the three month period ending March 31, 2014 and $228,500 from the issuance of common stock during the three month period ended March 31, 2013.

As of March 31, 2014 we did not have any established lines of credit with any banks or any other arrangements, agreements, or commitments for financing our operations.

Going Concern

The Company has no revenues and has incurred net losses. In addition, at March 31, 2014, there is an accumulated deficit of $84,082,551. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or available from external sources such as debt or equity financings, or other potential sources. The inability to generate cash flow from operations or to raise capital from external sources will force the Company to substantially curtail and cease operations, therefore, having a material adverse effect on its business. Furthermore, there can be no assurance that any funds, if available, will possess attractive terms or not have a significant dilutive effect on the Company’s existing stockholders.

Off-balance sheet arrangements:

The Company has no off-balance sheet arrangements.

Recent Pronouncements

Management does not anticipate that any new accounting pronouncements will have a material impact on the financial statements.

18

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective, as of March 31, 2014, in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

Management has implemented internal controls to ensure that its quarterly reports and annual reports are filed with the SEC on a timely basis. Management has retained the services of a new accounting firm, as well as an auditing firm specializing in public companies and a strong reputation in the auditing community. We have also hired a highly qualified financial consultant with extensive experience with public companies in the manufacturing industry. This newly implemented three tier process ties the Company’s bookkeeping activities with a full service accounting firm that handles all financial reporting activities and the Company’s interface with the selected auditing firm.

Changes in Internal Control over Financial Reporting:

During the quarter covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than as described above.

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

(a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;

(b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and

(c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant's assets that could have a material effect on the financial statements.

19

PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

As a “small reporting company”, we are not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On May 13, 2014, the company sent a letter to John Fitzpatrick, III, CEO and president of the company, informing Mr. Fitzpatrick that his employment agreement was being terminated in accordance with its terms. The company further informed Mr. Fitzpatrick that he will maintain his current position and title with the company on at-will basis. Notwithstanding, upon receipt of the letter Mr. Fitzpatrick informed the company that he would not be continuing in his position.

The company also notified an engineer of the company that his agreement was being terminated, and such employee informed the company that he will be instituting legal proceedings against the company in the amount of $68,000 for wrongful termination of his agreement and severance due.

In both instances the company informed the employees that their respective employment agreements were being terminated in accordance with the terms of such agreements, which provide for 30-day notice prior to the anniversary date of the agreements. Accordingly, the company was within its rights to send such notices and intends to defend these potential matters vigorously.

20

ITEM 6. EXHIBITS

Exhibit	Description
31	Section 302 Certification of Principal Executive Officer
32	Section 906 Certification of Principal Executive Officer
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculations
101.DEF*	XBRL Taxonomy Extension Definitions
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation

* XBRL 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.

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized person.

	US Highland, Inc.
Date: May 23, 2014	By:	/s/ Robert Harris
		Robert Harris
		Chairman, Board of Directors

22

EX-31.1

EXHIBIT 31

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Harris, certify that:

1. I have reviewed this quarterly report on Form 10-Q of US Highland, Inc., a Nevada corporation, for the quarter ended March 31, 2014;

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 officer(s) 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 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 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 our 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the 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 officer(s) 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 the 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 control over financial reporting.

Date: May 23, 2014	By:	/s/ Robert Harris
		Robert Harris
		Chairman, Board of Directors (Principal Executive, Financial, and Accounting Officer)

EX-32.1

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Robert Harris, Chairman, Board of Directors of US Highland, Inc. (the “Registrant”), certifies, under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 2014 (the “Report”):

(1) 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 results of operations of the Registrant.

Date: May 23, 2014	By:	/s/ Robert Harris
		Robert Harris
		Chairman, Board of Directors (Principal Executive, Financial, and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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8. Commitments (Details) (USD $)	Mar. 31, 2014
Commitments Details
Fiscal year ending December 31, 2014	$ 38,864
Fiscal year ending December 31, 2015	53,645
Fiscal year ending December 31, 2016	55,634
Fiscal year ending December 31, 2017	57,631
Fiscal year ending December 31, 2018	59,624
Fiscal year ending December 31, 2019	15,280
Total	$ 280,678

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2. Property and Equipment (Details) (USD $)			3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 Computers and office equipment	Mar. 31, 2014 Manufacturing equipment [Member] Minimum [Member]	Mar. 31, 2014 Manufacturing equipment [Member] Maximum [Member]
Computers and office equipment	$ 15,930	$ 15,930
Manufacturing equipment	28,408	28,408
Property and Equipment Gross	44,338	44,338
Accumulated depreciation	(22,405)	(19,783)
Property and equipment, net	$ 21,933	$ 24,555
Property, Plant and Equipment, Useful Life			3 years	5 years	10 years

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3. Loans Payable

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Loans Payable

		March 31, 2014		December 31,  2013
Loans payable consist of the following:
a)	Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing.	$	25,000	$	25,000
b)	Note payable which is unsecured, non-guaranteed, past due and bears interest at 10% per annum.		7,500		7,500
c)	On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at March 31, 2014, the Company recognized the fair value of 7,500 (December 31, 2013 – 5,500) common shares issuable for interest expense of $121,362 (December 31, 2013 - $120,282), as shares reserved for future issuance. The Company has not yet issued these common shares. As at March 31, 2014, the Company has also accrued interest expense of $21,560 (December 31, 2013 - $19,880).		56,000		56,000
d)	On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly. In addition, the Company is required to issue 5,000 common shares every month until the loan is repaid in full. As of March 31, 2014, the Company recognized the fair value of 35,000 (December 31, 2013 - 20,000) common shares issuable for interest expense of $9,600 (December 31, 2013 - $9,600), as shares reserved for future issuance. The Company has not yet issued these common shares. As at March 31, 2014, the Company has also accrued interest expense of $181 (December 31, 2013 - $125).		27,000		27,000
d)	On January 17, 2014, the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on January 17, 2016.		50,000		–
e)	On January 29, 2014 the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on January 29, 2016.		50,000		–
f)	On February 19, 2014, the Company issued a $25,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on February 19, 2016.		25,000		–
g)	On February 27, 2014, the Company received advances of $6,000 from a director. The amount is unsecured, non-interest bearing and due on demand.		6,000		–
h)	On March 3, 2014, the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on March 3, 2016.		50,000		–
i)	On March 19, 2014, the Company issued a $150,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on March 19, 2016.		150,000		–

Total	$	446,500		$	115,500
Less Short Term		(121,500	)		(115,500	)
Long Term		325,000			-

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5. Derivative Liabilities (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Derivative Liabilities Details
Balance at the beginning of period	$ 29,430,719		$ 941,464
Addition of new derivative liabilities (embedded conversion options)			14,028,014
Addition of new derivative liabilities (warrants)	53,606		9,209,794
Change in fair value of warrants	(1,690,434)	(588,212)	(627,690)
Change in fair value of embedded conversion option	(898,695)		9,128,915
Conversion of warrants			(3,249,778)
Settlement of embedded conversion options	$ 27,793,891		$ 29,430,719

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4. Convertible Debentures (Details Narrative) (USD $)	3 Months Ended		12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013	Mar. 31, 2014 Conversion option warrants [Member]	Dec. 31, 2013 Conversion option warrants [Member]	Mar. 31, 2014 Conversion option warrants one [Member]	Dec. 31, 2013 Conversion option warrants one [Member]	Mar. 31, 2014 Conversion option warrants two [Member]	Dec. 31, 2013 Conversion option warrants two [Member]	Mar. 31, 2014 Conversion option warrants three [Member]	Dec. 31, 2013 Conversion option warrants three [Member]	Mar. 31, 2014 Conversion option warrants four [Member]	Dec. 31, 2013 Conversion option warrants four [Member]
Repayments of Notes Payable			$ 2,000
Debt Instrument, Face Amount	56,333		56,333
Debt Instrument, Interest Rate, Stated Percentage				8.00%		8.00%		8.00%		8.00%		8.00%
Company received proceeds under the note					500,000		273,700		20,000		25,000		41,300
Initial fair value of the conversion feature				6,714,279		5,278,978		250,021		312,522		547,736
Accretion Expense	165,723			96,999		51,883		3,997		5,009		7,835
Derivative, Loss on Derivative	1,690,434	(588,212)		9,383,810		7,455,797		375,964		470,045		693,967
Notes Payable	500,000			500,000		273,700		20,000		25,000		41,300
Increasing the carrying value of the note				$ 189,353		$ 103,891		$ 10,518		$ 12,977		$ 24,480

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5. Derivative Liabilities (Details 1) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Derivative Liabilities Details 1
Change in fair value of derivative liabilities during period	$ (1,690,434)	$ (588,212)	$ (627,690)
Change in fair value of derivatives	$ (1,690,434)	$ (588,212)

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5. Derivative Liabilities (Details 2)	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Expected Volatility		209.00%
Risk-free Interest Rate		0.38%
Expected Dividend Yield		0.00%
Expected Life (in years)		3 years
Minimum [Member]
Expected Volatility	6.00%	29.00%
Risk-free Interest Rate	0.40%	0.10%
Expected Dividend Yield	0.00%	0.00%
Expected Life (in years)	3 months 29 days	6 months 29 days
Maximum [Member]
Expected Volatility	200.00%	209.00%
Risk-free Interest Rate	0.93%	0.58%
Expected Dividend Yield	0.00%	0.00%
Expected Life (in years)	2 years 9 months 4 days	3 years

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2. Property and Equipment

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Property and Equipment

Property and equipment consists of the following:

	Useful Life	March 31, 2014			December 31, 2013
Computers and office equipment	3 years	$	15,930		$	15,930
Manufacturing equipment	5 - 10 years		28,408			28,408
			44,338			44,338
Accumulated depreciation			(22,405	)		(19,783	)
Property and equipment, net		$	21,933		$	24,555

Depreciation expense amounted to approximately $2,622 and $2,561 for the three months ended March 31, 2014 and 2013, respectively.

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7. Stock Purchase Warrants (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
Stock Purchase Warrants Details
Number Beginning Balance	27,412,916
Issued	198,750
Number Ending Balance	27,412,916
Weighted Average Exercise Price Beginning Balance	$ 0.08
Issued	$ 0.0005
Weighted Average Exercise Price Ending Balance	$ 0.08
Weighted Average Remaining Term Beginning Balance	8 months 12 days
Weighted Average Remaining Term Ending Balance	5 months 16 days

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Unaudited Condensed Consolidated Balance Sheets (USD $)	Mar. 31, 2014	Dec. 31, 2013
ASSETS
Cash	$ 100,555	$ 43,044
Inventory	125,222	99,826
Prepaid expenses	43,873	58,520
Total Current Assets	269,650	201,390
Long-term deposits	11,478	11,491
Property and Equipment, net	21,933	24,555
Total Assets	303,061	237,436
Accounts payable	440,330	393,617
Accrued liabilities	294,757	258,238
Convertible debentures	517,552	351,829
Derivative liabilities	27,793,891	29,430,719
Loans payable ($33,000 and $27,000 related parties, respectively)	121,500	115,500
Total Current Liabilities	29,168,030	30,549,903
Loans Payable	325,000
Total Liabilities	29,493,030	30,549,903
Commitments
Preferred Stock, 3,550,000 shares authorized, par value $0.01; No shares issued and outstanding at March 31, 2014 and December 31, 2013
Common Stock, 500,000,000 shares authorized, $0.01 par value; 77,727,669 shares issued and outstanding at March 31, 2014 and December 31, 2013	777,276	777,276
Common Stock Reserved for Future Issuance	130,961	129,881
Additional Paid-in Capital	54,757,845	54,757,845
Accumulated Deficit	(84,082,551)	(85,203,969)
Total Deficit	(28,416,469)	(29,538,967)
Treasury Stock, at cost - 58,333 shares at December 31, 2013 and December 31, 2012	(773,500)	(773,500)
Total Stockholders' Deficiency	(29,189,969)	(30,312,467)
Total Liabilities and Stockholders' Deficiency	$ 303,061	$ 237,436

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Unaudited Condensed Consolidated Statement of Stockholder's Equity (USD $)	Common Stock	Additional Paid-in Capital	Commom Stock Reserved For Future Instance	Stock Subscription Receivable	Retained Earnings	Treasury Stock	Total
Beginning Balance at Dec. 31, 2012	$ 672,743	$ 51,337,434	$ 114,303	$ (1,000)	$ (53,096,829)	$ (773,500)	$ (1,746,849)
Beginning Balance, Shares at Dec. 31, 2012	67,757,669
Shares issued upon conversion of warrants	50,000	3,202,278					3,252,278
Shares issued upon conversion of warrants, Shares	5,000,000
Subscriptions received				1,000			1,000
Cancellation of shares issued in error, Shares	(483,333)
Shares issued to settle debt	9,533	38,133					47,666
Shares issued to settle debt, Shares	953,333
Shares issuable in payment of accrued interest			15,578				15,578
Shares issued for cash	45,000	180,000					225,000
Shares issued for cash, Shares	4,500,000
Net Income/(loss) for the year					(32,107,140)		(32,107,140)
Ending Balance at Dec. 31, 2013	777,276	54,757,845	129,881		(85,203,969)	(773,500)	(30,312,467)
Ending Balance, Shares at Dec. 31, 2013	77,727,669						114,303
Shares issued upon conversion of warrants
Shares issued upon conversion of warrants, Shares							53,606
Shares issuable in payment of accrued interest			1,080				1,080
Net Income/(loss) for the year					1,121,418		1,121,418
Ending Balance at Mar. 31, 2014	$ 777,276	$ 54,757,845	$ 130,961		$ (84,082,551)	$ (773,500)	$ (29,189,969)
Ending Balance, Shares at Mar. 31, 2014	77,727,669

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8. Commitments (Tables)

3 Months Ended

Mar. 31, 2014

Commitments Tables

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

The Company’s future minimum lease payments are as follows:

Fiscal year ending December 31, 2014	$	38,864
Fiscal year ending December 31, 2015		53,645
Fiscal year ending December 31, 2016		55,634
Fiscal year ending December 31, 2017		57,631
Fiscal year ending December 31, 2018		59,624
Fiscal year ending December 31, 2019		15,280
	$	280,678

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1. Summary of Business and Basis of Presentation (Details Narrative) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Summary Of Business And Basis Of Presentation Details Narrative
Net Liabilities	$ 28,898,380
Accumulated deficit	$ 84,082,551	$ 85,203,969

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1. Summary of Business and Basis of Presentation

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Summary of Business and Basis of Presentation

Organization and Business

US Highland, Inc. was originally formed as a Limited Liability Company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name Harcom Productions, Inc. On January 25, 2010, Articles of Merger were filed with the state of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc. US Highland, Inc. (the “Company”) is a recreational power sports Original Equipment Manufacturer (“OEM”), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.

Basis of Presentation

The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, US Highlands Electric Inc. All significant intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Certain prior year amounts have been reclassified to conform to current year presentation.

Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended December 31, 2013 included in the Company’s Annual Report on Form 10K filed on May 6, 2014 (the “2013 Annual Report”).

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report.

Going concern

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from operations, and as of March 31, 2014, current liabilities exceed current assets by $28,898,380, and the Company has an accumulated deficit of $84,082,551. The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, and internally generated working capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Earnings (Loss) Per Share

	2014								2013
	Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share			Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share
Basic:
Income (loss) attributable to common stock	$	1,121,418			77,727,669	$	0.01		$	(3,808,786	)		70,793,700	$	(0.05	)
Effect of Dilutive Securities:
Convertible Debt Warrants		(713,111	)		89,750,000		(0.01	)		–			–		–
Diluted:
Income (loss) attributable to common stock, including assumed conversions		(790,747	)		21,107,000		(0.00	)		–			–		–
	$	(382,440	)		188,584,669	$	(0.00	)	$	(3,808,786	)		70,793,700	$	(0.05	)

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Unaudited Condensed Consolidated Balance Sheets (Parentheticals) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Unaudited Condensed Consolidated Balance Sheets Parentheticals
Loans payable - related parties (in Dollars)	$ 33,000	$ 27,000
Preferred Stock, shares authorized	3,550,000	3,550,000
Preferred Stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, shares authorized	500,000,000	500,000,000
Common Stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Common Stock, shares issued	77,727,669	77,727,669
Common Stock, shares outstanding	77,727,669	77,727,669
Treasury Stock - shares	58,333	58,333

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1. Summary of Business and Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2014

Summary Of Business And Basis Of Presentation Tables

Earnings (Loss) Per Share

	2014								2013
	Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share			Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share
Basic:
Income (loss) attributable to common stock	$	1,121,418			77,727,669	$	0.01		$	(3,808,786	)		70,793,700	$	(0.05	)
Effect of Dilutive Securities:
Convertible Debt Warrants		(713,111	)		89,750,000		(0.01	)		–			–		–
Diluted:
Income (loss) attributable to common stock, including assumed conversions		(790,747	)		21,107,000		(0.00	)		–			–		–
	$	(382,440	)		188,584,669	$	(0.00	)	$	(3,808,786	)		70,793,700	$	(0.05	)

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Document And Entity Information	3 Months Ended
	Mar. 31, 2014	May 20, 2014
Document And Entity Information
Entity Registrant Name	US Highland, Inc.
Entity Central Index Key	0001381871
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		77,727,669
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2014

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2. Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2014

Property And Equipment Tables

Property, Plant and Equipment

Property and equipment consists of the following:

	Useful Life	March 31, 2014			December 31, 2013
Computers and office equipment	3 years	$	15,930		$	15,930
Manufacturing equipment	5 - 10 years		28,408			28,408
			44,338			44,338
Accumulated depreciation			(22,405	)		(19,783	)
Property and equipment, net		$	21,933		$	24,555

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Unaudited Condensed Consolidated Statements of Operations (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Unaudited Condensed Consolidated Statements Of Operations
Revenue
Operating Expenses
Depreciation	2,622	2,561
General and administrative	159,793	160,596
Professional fees	215,727	3,051,973
Total Operating Expenses	378,142	3,215,130
Operating Loss	(378,142)	(3,215,130)
Other Income (Expense)
Interest expense	(190,979)	(7,657)
Change in fair value of derivatives	1,690,434	(588,212)
Other income (expense)	105	2,213
Total Other Income (Expense)	1,499,560	(593,656)
Net Income (Loss)	$ 1,121,418	$ (3,808,786)
Net Loss Per Common Share
Basic	$ 0.01	$ (0.05)
Diluted	$ 0.00	$ (0.05)
Basic Weighted Average Number of Common Shares Outstanding	77,727,669	70,793,700
Diluted Weighted Average Number of Common Shares Outstanding	188,584,669	70,793,700

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6. Common Stock

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Common Stock

There were no share transactions during the three months ended March 31, 2014.

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5. Derivative Liabilities

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Derivative Liabilities

The embedded conversion options of the Company’s convertible debentures described in Note 4 contain conversion features that qualify for embedded derivative classification. The warrants described in Note 7 also qualify for derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:

	March 31, 2014			December 31, 2013
Balance at the beginning of period	$	29,430,719		$	941,464
Addition of new derivative liabilities (embedded conversion options)		–			14,028,014
Addition of new derivative liabilities (warrants)		53,606			9,209,794
Change in fair value of warrants		(791,739	)		(627,690	)
Change in fair value of embedded conversion option		(898,695	)		9,128,915
Conversion of warrants		–			(3,249,778	)
Balance at the end of the period	$	27,793,891		$	29,430,719

The following table summarizes the change in fair value of derivatives:

	March 31, 2014			March 31, 2013
Change in fair value of derivative liabilities during period	$	(1,690,434	)	$	(588,212	)
Change in fair value of derivatives	$	(1,690,434	)	$	(588,212	)

The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:

	Expected Volatility			Risk-free Interest Rate			Expected Dividend Yield			Expected Life (in years)
At December 31, 2013		29% - 209	%		0.10% - 0.58	%		0	%		0.58-3.00
At issuance		209	%		0.38	%		0	%		3.00
At March 31, 2014		6% - 200	%		0.4% - 0.93	%		0	%		0.33-2.76

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1. Summary of Business and Basis of Presentation (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Summary Of Business And Basis Of Presentation Details
Income (loss) attributable to common stock, basic	$ 1,121,418	$ (3,808,786)
Weighted Average Common Shares Outstanding, Basic	77,727,669	70,793,700
Earnings (Loss) Per Share, basic	$ 0.01	$ (0.05)
Effect of Convertible Debt Warrants attributable to common stock	(713,111)
Effect of Convertible Debt Warrants attributable to Common Shares Outstanding	89,750,000
Effect of Convertible Debt Warrants attributable to Earnings (Loss) Per Share, basic	$ (0.01)
Income (loss) attributable to common stock, including assumed conversions	(790,747)
Income (loss) attributable to common stock, including assumed conversions, shares	21,107,000
Income (loss) attributable to common stock, including assumed conversions per share	$ 0.00
Income (loss) attributable to common stock, Diluted	$ (382,440)	$ (3,808,786)
Weighted Average Common Shares Outstanding, Diluted	188,584,669	70,793,700
Earnings (Loss) Per Share, Diluted	$ 0.00	$ (0.05)

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3. Loans Payable (Tables)

3 Months Ended

Mar. 31, 2014

Loans Payable Tables

Schedule of Debt

		March 31, 2014		December 31,  2013
Loans payable consist of the following:
a)	Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing.	$	25,000	$	25,000
b)	Note payable which is unsecured, non-guaranteed, past due and bears interest at 10% per annum.		7,500		7,500
c)	On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at March 31, 2014, the Company recognized the fair value of 7,500 (December 31, 2013 – 5,500) common shares issuable for interest expense of $121,362 (December 31, 2013 - $120,282), as shares reserved for future issuance. The Company has not yet issued these common shares. As at March 31, 2014, the Company has also accrued interest expense of $21,560 (December 31, 2013 - $19,880).		56,000		56,000
d)	On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly. In addition, the Company is required to issue 5,000 common shares every month until the loan is repaid in full. As of March 31, 2014, the Company recognized the fair value of 35,000 (December 31, 2013 - 20,000) common shares issuable for interest expense of $9,600 (December 31, 2013 - $9,600), as shares reserved for future issuance. The Company has not yet issued these common shares. As at March 31, 2014, the Company has also accrued interest expense of $181 (December 31, 2013 - $125).		27,000		27,000
d)	On January 17, 2014, the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on January 17, 2016.		50,000		–
e)	On January 29, 2014 the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on January 29, 2016.		50,000		–
f)	On February 19, 2014, the Company issued a $25,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on February 19, 2016.		25,000		–
g)	On February 27, 2014, the Company received advances of $6,000 from a director. The amount is unsecured, non-interest bearing and due on demand.		6,000		–
h)	On March 3, 2014, the Company issued a $50,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on March 3, 2016.		50,000		–
i)	On March 19, 2014, the Company issued a $150,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum and is due on March 19, 2016.		150,000		–

Total	$	446,500		$	115,500
Less Short Term		(121,500	)		(115,500	)
Long Term		325,000			-

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9. Subsequent Events

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Subsequent Events

a) On April 25, 2014, the Company entered into a note payable with a related party, pursuant to which the Company received proceeds of $25,000. The note bears interest at an annual rate of 8% per annum and is due on April 25, 2016

b) On May 13, 2014, the Company terminated the former CEO and President of the Company’s employment agreement in accordance with its terms. The Company informed the former CEO and President that he would maintain his current position and title with the Company on at-will basis. The former CEO and President informed the Company that he would not be continuing in his position. Also on May 13, 2014, the Company terminated an employment agreement with an engineer in accordance with its terms. The former employee informed the Company that he will be instituting legal proceedings against the Company in the amount of $68,000 for wrongful termination of the agreement and severance due. In both instances the Company informed the employees that their respective employment agreements were being terminated in accordance with the terms of such agreements, which provide for 30-day notice prior to the anniversary date of the agreements. Accordingly, the Company was within its rights to send such notices and intends to defend these potential matters vigorously.

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7. Stock Purchase Warrants

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Stock Purchase Warrants

a) On January 2, 2014, the Company entered into a settlement agreement with a consultant to settle $11,800 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 43,750 shares of common stock at $0.0005 per share for three years.

b) On January 3, 2014, the Company entered into a settlement agreement with a consultant to settle $41,806 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 155,000 shares of common stock at $0.0005 per share for three years.

A summary of the changes in the Company’s common share purchase warrants is presented below:

	Number		Weighted Average Exercise Price		Weighted Average Remaining Term
Balance December 31, 2013		27,214,166	$	0.08	0.70 years
Issued		198,750		0.0005
Balance March 31, 2014		27,412,916	$	0.08	0.46 years

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8. Commitments

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Commitments

a) The Company entered into a consulting agreement dated September 20, 2011 with a director of the Company for services to be provided for a term of three years. The Company agreed to pay $2,250 per month, as well as issue 16,667 shares of common stock. The agreement was subsequently suspended. During the three months ended March 31, 2014, the Company recorded $0 (March 31, 2013 - $10,000) of professional fees.

b) The Company entered into an employment agreement dated October 14, 2011 with an officer of the Company for services to be provided for an initial term of three years, and on a year-to-year basis thereafter. The Company agreed to pay $8,000 per month, increasing to $10,000 per month on the seventh month, and further to $12,000 per month on the tenth month. During the three months ended March 31, 2014, the Company recorded $33,231 (March 31, 2013 - $36,000) of general and administrative expenses.

c) During the year ended December 31, 2012, the Company entered into two leases for the provision of office and warehouse space until April 30, 2015. On April 1, 2013, the Company entered into an amendment to the lease agreements. Pursuant to the amendment, one of the leases was terminated and the other was extended to March 31, 2019. During the three months ended March 31, 2014, the Company recognized $12,788 (2013 - $12,290) of rent expense. The Company’s future minimum lease payments are as follows:

Fiscal year ending December 31, 2014	$	38,864
Fiscal year ending December 31, 2015		53,645
Fiscal year ending December 31, 2016		55,634
Fiscal year ending December 31, 2017		57,631
Fiscal year ending December 31, 2018		59,624
Fiscal year ending December 31, 2019		15,280
	$	280,678

d) The Company issued a $500,000 convertible note on July 25, 2013, of which so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company.

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1 . Summary of Business and Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2014

Summary Of Business And Basis Of Presentation Policies

Organization and Business

US Highland, Inc. was originally formed as a Limited Liability Company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name Harcom Productions, Inc. On January 25, 2010, Articles of Merger were filed with the state of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc. US Highland, Inc. (the “Company”) is a recreational power sports Original Equipment Manufacturer (“OEM”), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.

Basis of Presentation

The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, US Highlands Electric Inc. All significant intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Certain prior year amounts have been reclassified to conform to current year presentation.

Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended December 31, 2013 included in the Company’s Annual Report on Form 10K filed on May 6, 2014 (the “2013 Annual Report”).

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report.

Going concern

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from operations, and as of March 31, 2014, current liabilities exceed current assets by $28,898,380, and the Company has an accumulated deficit of $84,082,551. The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, and internally generated working capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Earnings (Loss) Per Share

	2014								2013
	Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share			Income (Loss)			Weighted Average Common Shares Outstanding		Earnings (Loss) Per Share
Basic:
Income (loss) attributable to common stock	$	1,121,418			77,727,669	$	0.01		$	(3,808,786	)		70,793,700	$	(0.05	)
Effect of Dilutive Securities:
Convertible Debt Warrants		(713,111	)		89,750,000		(0.01	)		–			–		–
Diluted:
Income (loss) attributable to common stock, including assumed conversions		(790,747	)		21,107,000		(0.00	)		–			–		–
	$	(382,440	)		188,584,669	$	(0.00	)	$	(3,808,786	)		70,793,700	$	(0.05	)

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8. Commitments (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
General and Administrative Expense	$ 159,793	$ 160,596
Employment Contracts [Member]
Accrued Professional Fees	0	10,000
General and Administrative Expense	33,231	36,000
Rent expense	$ 12,788	$ 12,290

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7. Stock Purchase Warrants (Tables)

3 Months Ended

Mar. 31, 2014

Stock Purchase Warrants Tables

Schedule of Share-based Compensation, Stock Options and Stock Appreciation Rights Award Activity

A summary of the changes in the Company’s common share purchase warrants is presented below:

	Number		Weighted Average Exercise Price		Weighted Average Remaining Term
Balance December 31, 2013		27,214,166	$	0.08	0.70 years
Issued		198,750		0.0005
Balance March 31, 2014		27,412,916	$	0.08	0.46 years

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2. Property and Equipment (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Property And Equipment Details Narrative
Depreciation, Depletion and Amortization, Nonproduction	$ 2,622	$ 2,561

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Unaudited Condensed Consolidated Statements of Cash Flows (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Operating Activities
Net income (loss)	$ 1,121,418	$ (3,808,786)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation	2,622	2,561
Accretion expense	165,723
Change in fair value of derivative	(1,690,434)	588,212
Warrants issued for consulting services		2,599,801
Shares issuable for interest expense	1,080	2,285
Changes in operating assets and liabilities:
Inventory	(25,396)
Prepaid expenses and deposits	14,660	(25,048)
Accounts payable and accrued liabilities	136,838	460,576
Net Cash Used in Operating Activities	(273,489)	(180,399)
Financing Activities
Proceeds from issuance of notes payable	331,000
Proceeds from issuance of common stock		228,500
Net Cash Provided by Financing Activities	331,000	228,500
Increase In Cash	57,511	48,101
Cash - Beginning of Year	43,044	10,498
Cash - End of Year	$ 100,555	$ 58,599
Non-cash Investing and Financing Activities
Warrants issued to settle debt (in Shares)	53,606

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4. Convertible Debentures

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Convertible Debentures

a) Effective January 25, 2010, the Company issued a convertible note for $225,000. Pursuant to the terms of the agreement, the loan was unsecured, non-interest bearing, and was due on December 21, 2010. The note was convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 65% of the average of the closing bid prices of the common stock during the 28 trading days prior to the date of the conversion notice and was subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liability of $538,249 resulted in a full discount to the note payable of $225,000 and the recognition of a loss on derivatives of $313,249.

On June 2, 2010, the Company issued 6,386 restricted shares of common stock upon the conversion of the principal amount of $166,667. The fair value of the derivative liability at June 2, 2010, was $266,425 and $197,352 was reclassified to additional paid-in capital upon conversion. During the year ended December 31, 2013, the Company repaid $2,000 of the note. At March 31, 2014 and December 31, 2013, the carrying value of the note was $56,333. The note is in default at March 31, 2014.

b) Effective July 25, 2013, the Company issued a convertible note to secure a demand loan of $75,000. Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand.

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $577,797 resulted in a discount to the note payable of $75,000 and the recognition of a loss on derivatives of $502,797. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013 as the note is due on demand.

c) Effective July 25, 2013, the Company issued a convertible note to secure the demand loan of $45,000. Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand.

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $346,678 resulted in a discount to the note payable of $45,000 and the recognition of a loss on derivatives of $301,678. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013 as the note is due on demand.

d) On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company’s common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amountsare due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. The note is secured against substantially all of the assets of the Company.

The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.

Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $6,714,279 and warrants of $3,169,531 resulted in a discount to the note payable of $500,000 and the recognition of a loss on derivatives of $9,383,810. During the three months ended March 31, 2014, the Company recorded accretion of $96,999 increasing the carrying value of the note to $189,353.

e) On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 10,197,916 underlying shares of the Company’s common stock. The warrants are exercisable into 8,158,333 common shares of the Company at $0.05 per share and 2,039,583 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $273,700 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. Due to the potential adjustments to the conversion rate of the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $5,278,978 and warrants of $2,450,519 resulted in a discount to the note payable of $273,700 and the recognition of a loss on derivatives of $7,455,797. During the three months ended March 31, 2014, the Company recorded accretion of $51,883 increasing the carrying value of the note to $103,891.

f) Effective November 12, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 694,445 underlying shares of the Company’s common stock. The warrants are exercisable into 555,556 common shares of the Company at $0.05 per share and 138,889 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $20,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $250,021 and warrants of $145,943, resulted in a discount to the note payable of $20,000 and the recognition of a loss on derivatives of $375,964. During the three months ended March 31, 2014, the Company recorded accretion of $3,997 increasing the carrying value of the note to $10,518.

g) Effective October 7, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 868,055 underlying shares of the Company’s common stock. The warrants are exercisable into 694,444 common shares of the Company at $0.05 per share and 173,611 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $25,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $312,522 and warrants of $182,522 resulted in a discount to the note payable of $25,000 and the recognition of a loss on derivatives of $470,045. During the three months ended March 31, 2014, the Company recorded accretion of $5,009 increasing the carrying value of the note to $12,977.

h) On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 739,584 underlying shares of the Company’s common stock. The warrants are exercisable into 591,667 common shares of the Company at $0.05 per share and 147,917 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $41,300 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $547,736 and warrants of $187,531, resulted in a discount to the note payable of $41,300 and the recognition of a loss on derivatives of $693,967. During the three months ended March 31, 2014, the Company recorded accretion of $7,835 increasing the carrying value of the note to $24,480.

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3. Loans Payable (Details) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Loan Payable	$ 446,500	$ 115,500
Less Short Term	(121,500)	(115,500)
Long Term	325,000
Loan 5 [Member]
Loan Payable
Loan 1 [Member]
Loan Payable	25,000	25,000
Loan 2 [Member]
Loan Payable	7,500	7,500
Loan 3 [Member]
Loan Payable	56,000	56,000
Loan 4 [Member]
Loan Payable	27,000	27,000
Loan 5 [Member]
Loan Payable	50,000
Loan 6 [Member]
Loan Payable	50,000
Loan 7 [Member]
Loan Payable	25,000
Loan 8 [Member]
Loan Payable	6,000
Loan 9 [Member]
Loan Payable	50,000
Loan 10 [Member]
Loan Payable	$ 150,000

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5. Derivative Liabilities (Tables)

3 Months Ended

Mar. 31, 2014

Derivative Liabilities Tables

Schedule of Derivative Instruments

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:

	March 31, 2014			December 31, 2013
Balance at the beginning of period	$	29,430,719		$	941,464
Addition of new derivative liabilities (embedded conversion options)		–			14,028,014
Addition of new derivative liabilities (warrants)		53,606			9,209,794
Change in fair value of warrants		(791,739	)		(627,690	)
Change in fair value of embedded conversion option		(898,695	)		9,128,915
Conversion of warrants		–			(3,249,778	)
Balance at the end of the period	$	27,793,891		$	29,430,719

Fair Value, by Balance Sheet Grouping

The following table summarizes the change in fair value of derivatives:

	March 31, 2014			March 31, 2013
Change in fair value of derivative liabilities during period	$	(1,690,434	)	$	(588,212	)
Change in fair value of derivatives	$	(1,690,434	)	$	(588,212	)

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The following table shows the assumptions used in the calculations:

	Expected Volatility			Risk-free Interest Rate			Expected Dividend Yield			Expected Life (in years)
At December 31, 2013		29% - 209	%		0.10% - 0.58	%		0	%		0.58-3.00
At issuance		209	%		0.38	%		0	%		3.00
At March 31, 2014		6% - 200	%		0.4% - 0.93	%		0	%		0.33-2.76