SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For Quarterly Period Ended June 30, 2010
-OR-
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities And Exchange Act of 1934 for the transaction period from
_______ to ________
Commission File Number 333-139685
US HIGHLAND, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 26-4144571
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
17424 South Union Avenue, Mounds, OK 74047
(Address of principal executive offices) (Zip Code)
918-467-2231
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1)has filed all reports
required to be filed by Section 13 or 15(d)of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (section 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company as defined by Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Non-accelerated filed [ ]
Accelerated filer [ ] Smaller reporting company [X]
Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No X
The number of shares outstanding of the registrant's common stock, par
value $0.01 per share, as of August 15, 2010: 21,462,500 shares.
2
US Highland, Inc.
FORM 10-Q
For the quarterly period ended June 30, 2010
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 13
Item 4T. Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 1A. Risk Factors 15
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Removed and Reserved 15
Item 5. Other Information 15
Item 6. Exhibits 15
SIGNATURES
3
PART I
Item I - Financial Statements
US Highland, Inc.
Balance Sheets
6/30/10 12/31/09
---------- ---------
(Unaudited)
ASSETS
Current Assets:
Cash $ 63,798 $ 392,766
Accounts Receivable 24,061 116,043
Inventory 5,887,786 4,254,582
Prepaid Assets 14,075 -
---------- ----------
5,989,720 4,763,391
---------- ----------
Property and Equipment:
Vehicle 20,750 20,750
Furniture and Fixtures 81,855 43,297
Tooling 351,345 300,000
Production Equipment 4,806 -
Leasehold Improvements 188,468 -
Accumulated Depreciation 47,953 (5,168)
---------- ----------
642,056 358,879
---------- ----------
Other Assets:
Intellectual Property - -
Long-term Notes Receivable 250,030 -
Goodwill 164,820 143,820
Deposits 1,148 1,102
---------- ----------
415,998 144,922
---------- ----------
Total Assets $7,047,774 $5,267,192
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts Payable $ 141,890 $ 264,097
Current Portion of Long-Term Debt 8,400 8,400
Accrued Liabilities 122,233 2,754
---------- ----------
272,523 275,251
---------- ----------
4
Long-term Liabilities:
Notes Payable 30,577 34,707
Current Portion of Long-Term Debt (8,400) (8,400)
---------- ----------
22,177 26,307
---------- ----------
Deferred Income Taxes 8,386 8,386
---------- ----------
30,563 34,693
---------- ----------
Stockholders' Equity:
Common Stock, 100 million shares
authorized, par $0.01, 10 million shares
issued and outstanding 977,001 100,000
Paid in Capital 6,369,757 4,810,149
Retained Earnings 281,930 47,099
Treasury Stock (884,000) -
---------- ----------
Total Stockholders' Equity 6,744,688 4,957,248
---------- ----------
Total Liabilities and Stockholders'
Equity $7,047,774 $5,267,192
========== ==========
The accompanying notes are an integral part
of the interim financial statements
5
US Highland, Inc.
Statements of Operations and Retained Earnings
For the Periods Ended June 30, 2010 and 2009
Three Months Ended Six Months Ended
06/30/10 06/30/09 06/30/10 06/30/09
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ---------- ---------- ----------
Revenue:
Sales $ 601,133 $ 53,756 $1,256,630 $ 136,512
Cost of Goods Sold (138,976) (15,542) (320,402) (50,230)
---------- ---------- ---------- ----------
Gross Profit 462,157 38,214 936,228 86,282
---------- ---------- ---------- ----------
Operating Expenses:
General and Administrative 255,067 66,152 405,842 139,360
Racing - - - -
Research and Development - - - -
Selling 80,816 - 172,363 -
Depreciation 42,785 - 42,785 -
---------- ---------- ---------- ----------
Total Operating Expenses 335,883 66,152 578,205 139,360
---------- ---------- ---------- ----------
Operating Income 126,274 (27,938) 358,023 (53,078)
Other Income (Expense):
Interest Income 73 - 176 -
Interest Expense (555) (3,171) (1,135) (6,388)
---------- ---------- ---------- ----------
(4,782) (3,171) (959) (6,388)
---------- ---------- ---------- ----------
Income before Provision
for Income Taxes 125,792 (31,109) 357,064 (59,466)
Provision for Income Taxes 40,801 - 122,233 -
---------- ---------- ---------- ----------
Net Income 84,991 31,109 234,831 (59,466)
Retained Earnings,
Beginning of Period 196,939 - 47,099 -
---------- ---------- ---------- ----------
Retained Earnings,
End of Period $ 281,930 $ (31,109) $ 281,930 $ (59,466)
========== ========== ========== ==========
The accompanying notes are an integral part
of the interim financial statements
6
US Highland, Inc.
Statement of Cash Flows
For the Periods Ended June 30, 2010 and 2009
06/30/10 06/30/09
-------- --------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 234,831 $ (59,466)
Adjustments to reconcile Net Income (Loss)
to net cash provided by (used in)
operating activities:
Depreciation - 8,274
(Increase) decrease in accounts
receivable 91,982 15,423
(Increase) decrease in inventories (73,596) -
(Increase) decrease in prepaid assets (140,075) 1,231
Increase (decrease) in accounts payable (122,207) (7,464)
Increase (decrease) in income taxes
payable 119,479 -
Increase (decrease) in deferred expenses - -
---------- ----------
Net Cash Provided by (Used in) Operating
Activities 110,414 (42,002)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment purchases (283,177) -
Net purchase of investments - -
---------- ----------
Net Cash Provided by (Used in) Investing
Activities (283,177) -
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - -
Proceeds from short-term debt - -
Proceeds from related party notes - 40,968
Repayment of long-term debt (4,130) -
---------- ----------
Net Cash Provided by (Used In) Financing
Activities 4,130) 40,968
---------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents (176,893) (1,034)
Cash and Cash Equivalents at Beginning of
Year 392,766 8,337
---------- ----------
Cash and Cash Equivalents at End of Period $ 215,873 $ 7,303
========== ==========
Supplemental Disclosures:
NONCASH INVESTING AND FINANCING ACTIVITIES
Interest Paid $ - $ 3,171
Assets acquired by assumption of debt $ - $ 36,670
Assets acquired by issuance of equity $ - $4,453,000
The accompanying notes are an integral part
of the interim financial statements
7
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
US Highland, Inc. was originally formed as a Limited Liability Company
on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to
the laws of the State of Oklahoma. On November 9, 2006, Powerhouse
Productions, L.L.C. filed Articles of Conversion changing the entity
from a limited liability company to a corporation under the name Harcom
Productions, Inc. On January 25, 2010, Articles of Merger were filed
with the state of Oklahoma merging U.S. Highland, Inc., an Oklahoma
corporation into Harcom Productions, Inc. and the name of the
corporation was changed to US Highland, Inc. US Highland, Inc. is a
recreational powersports OEM, developing motorcycles, quads, single
cylinder engines, and v-twin engines under its own brand and for other
OEMs.
Cash and Cash Equivalents
The Company considers highly liquid investments (those readily
convertible to cash) purchased with original maturity dates of three
months or less to be cash equivalents.
Income Taxes
In 2007 The Company had completed its conversion to a C-Corporation
under the laws of the state of Oklahoma. Income taxes are provided for
the tax effects of transactions reported in the financial statements
and consist of taxes currently due. Income taxes are accounted for in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS No. 109 income taxes are recognized for the
following: i) amount of taxes payable for the current year, and ii)
deferred tax assets and liabilities for the future tax consequences of
events that have been recognized differently in the financial
statements than for tax purposes. Deferred tax assets and liabilities
are established using statutory tax rates and are adjusted for tax rate
changes. SFAS 109 also requires that deferred tax assets be reduced by
a valuation allowance if it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
Allowance for Doubtful Accounts
It is the Company's policy to provide an allowance for doubtful
accounts when it believes there is a potential for non-collectability.
At present US Highland, Inc. management does not feel that there are
any doubtful accounts.
Revenue Recognition
Costs of Goods Sold costs include all direct equipment, amortization,
material, shipping costs and those indirect costs related to contract
performance, such as indirect labor. Selling, general and
administrative costs are charged to expenses as incurred. Changes in
8
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies (continued)
contract performance, contract conditions, and estimated profitability
that may result in revisions to costs and income are recognized in the
period in which the revisions are determined.
For revenue from product sales, the Company recognizes revenue in
accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition," which superseded SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably
assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the selling prices
of the products delivered and the collectability of those amounts.
Provisions for discounts and rebates to customers, estimated returns
and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue
for which the product has not been delivered or is subject to refund
until such time that the Company and the customer jointly determine
that the product has been delivered or no refund will be required. SAB
No. 104 incorporates Emerging Issues Task Force ("EITF") No. 00-21,
"Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
accounting for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use assets.
The effect of implementing EITF No. 00-21 on the Company's financial
position and results of operations was not significant. This issue
addresses determination of whether an arrangement involving more than
one deliverable contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the
separate units of accounting. EITF No. 00-21 became effective for
revenue arrangements entered into in periods beginning after September
15, 2003.
For those contracts which contain multiple deliverables, management
must first determine whether each service, or deliverable, meets the
separation criteria of EITF No. 00-21. In general, a deliverable (or a
group of deliverables) meets the separation criteria if the deliverable
has standalone value to the customer and if there is objective and
reliable evidence of the fair value of the remaining deliverables in
the arrangement. Each deliverable that meets the separation criteria is
considered a "separate unit of accounting." Management allocates the
total arrangement consideration to each separate unit of accounting
based on the relative fair value of each separate unit of accounting.
The amount of arrangement consideration that is allocated to a unit of
accounting that has already been delivered is limited to the amount
that is not contingent upon the delivery of another separate unit of
accounting. After the arrangement consideration has been allocated to
each separate unit of accounting, management applies the appropriate
9
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies (continued)
revenue recognition method for each separate unit of accounting as
described previously based on the nature of the arrangement. All
deliverables that do not meet the separation criteria of EITF No. 00-21
are combined into one unit of accounting, and the appropriate revenue
recognition method is applied.
Basis of Presentation
In the opinion of management, the accompanying balance sheets and
related interim statements of income, cash flows, and stockholders'
equity include all adjustments, consisting only of normal recurring
items, necessary for their fair presentation in conformity with
accounting principles generally accepted in the United States of
America ("U.S. GAAP"). Preparing financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, and expenses. Actual results
and outcomes may differ significantly from management's estimates and
assumptions.
Interim results are not necessarily indicative of results for a full
year. The information included in this Form 10-Q should be read in
conjunction with information included in the Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported revenues and
expenses during the reporting period. Actual results could differ
significantly from those estimates.
Long-Lived Assets
Equipment is stated at cost and depreciated over a useful life of 7
years. Expenditures for maintenance and repairs are charged to
operating expenses as incurred. When equipment is retired or otherwise
disposed of, the cost of the asset and the related accumulated
depreciation are removed from the accounts with the resulting gain or
loss being reflected in results of operations.
Management assesses the recoverability of equipment and intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from its future
undiscounted cash flows. If it is determined that an impairment has
occurred, an impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its estimated fair value.
10
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies (continued)
New Accounting Standards
Recent Accounting Pronouncements
In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on
estimating fair value when market activity has decreased and on
identifying transactions that are not orderly. Additionally, entities
are required to disclose in interim and annual periods the inputs and
valuation techniques used to measure fair value. This FSP is effective
for interim and annual periods ending after June 15, 2009. The Company
does not expect the adoption of FSP FAS 157-4 will have a material
impact on its financial condition or results of operation.
In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not
Active," ("FSP FAS 157-3"), which clarifies application of SFAS 157 in
a market that is not active. FSP FAS 157-3 was effective upon
issuance, including prior periods for which financial statements have
not been issued. The adoption of FSP FAS 157-3 had no impact on the
Company's results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8,
"Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities." This
disclosure-only FSP improves the transparency of transfers of financial
assets and an enterprise's involvement with variable interest entities,
including qualifying special-purpose entities. This FSP is effective
for the first reporting period (interim or annual) ending after
December 15, 2008, with earlier application encouraged. The Company
adopted this FSP effective January 1, 2009. The adoption of the FSP
had no impact on the Company's results of operations, financial
condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employers'
Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-
1"). FSP FAS 132(R)-1 requires additional fair value disclosures about
employers' pension and postretirement benefit plan assets consistent
with guidance contained in SFAS 157. Specifically, employers will be
required to disclose information about how investment allocation
decisions are made, the fair value of each major category of plan
assets and information about the inputs and valuation techniques used
to develop the fair value measurements of plan assets. This FSP is
effective for fiscal years ending after December 15, 2009. The Company
does not expect the adoption of FSP FAS 132(R)-1 will have a material
impact on its financial condition or results of operation.
11
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies (continued)
In September 2008, the FASB issued exposure drafts that eliminate
qualifying special purpose entities from the guidance of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and FASB Interpretation 46 (revised
December 2003), "Consolidation of Variable Interest Entities- an
interpretation of ARB No. 51," as well as other modifications. While
the proposed revised pronouncements have not been finalized and the
proposals are subject to further public comment, the Company
anticipates the changes will not have a significant impact on the
Company's financial statements. The changes would be effective March
1, 2010, on a prospective basis.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP
EITF 03-6-1 addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting, and
therefore need to be included in the computation of earnings per share
under the two-class method as described in FASB Statement of Financial
Accounting Standards No. 128, "Earnings per Share." FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning on
or after December 15, 2008 and earlier adoption is prohibited. We are
not required to adopt FSP EITF 03-6-1; neither do we believe that FSP
EITF 03-6-1 would have material effect on our consolidated financial
position and results of operations if adopted.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-
and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies
how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement of premium revenue and claims
liabilities. This statement also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163 is effective for
fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 162, "The Hierarchy of Generally Accepted Accounting
Principles". SFAS No. 162 sets forth the level of authority to a given
accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative
category will prevail. SFAS No. 162 will become effective 60 days after
the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA
Professional Standards. SFAS No. 162 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
12
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies (continued)
In March 2008, the Financial Accounting Standards Board, or FASB,
issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No. 133. This
standard requires companies to provide enhanced disclosures about (a)
how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement
133 and its related interpretations, and (c) how derivative instruments
and related hedged items affect an entity's financial position,
financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged.
The Company has not yet adopted the provisions of SFAS No. 161, but
does not expect it to have a material impact on its consolidated
financial position, results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No.
110 regarding the use of a "simplified" method, as discussed in SAB No.
107 (SAB 107), in developing an estimate of expected term of "plain
vanilla" share options in accordance with SFAS No. 123 (R), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined
estimates of expected term. At the time SAB 107 was issued, the staff
believed that more detailed external information about employee
exercise behavior (e.g., employee exercise patterns by industry and/or
other categories of companies) would, over time, become readily
available to companies. Therefore, the staff stated in SAB 107 that it
would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such
detailed information about employee exercise behavior may not be widely
available by December 31, 2007. Accordingly, the staff will continue to
accept, under certain circumstances, the use of the simplified method
beyond December 31, 2007. The Company currently uses the simplified
method for "plain vanilla" share options and warrants, and will assess
the impact of SAB 110 for fiscal year 2009. It is not believed that
this will have an impact on the Company's consolidated financial
position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements-an amendment of ARB No.
51. This statement amends ARB 51 to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Before this statement was issued, limited guidance existed
for reporting non-controlling interests. As a result, considerable
diversity in practice existed. So-called minority interests were
13
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies (continued)
reported in the consolidated statement of financial position as
liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008
(that is, January 1, 2009, for entities with calendar year-ends).
Earlier adoption is prohibited. The effective date of this statement is
the same as that of the related Statement 141 (revised 2007). The
Company will adopt this Statement beginning March 1, 2009. It is not
believed that this will have an impact on the Company's consolidated
financial position, results of operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in Statement
141. This Statement establishes principles and requirements for how
the acquirer: (a) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (b) recognizes and measures
the goodwill acquired in the business combination or a gain from a
bargain purchase; and (c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement applies
prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. An entity may not apply it
before that date. The effective date of this statement is the same as
that of the related FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements. The Company will adopt this
statement beginning March 1, 2009. It is not believed that this will
have an impact on the Company's consolidated financial position,
results of operations or cash flows.
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Liabilities-Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to
measure many financial instruments and certain other items at fair
value. This option is available to all entities. Most of the provisions
in FAS 159 are elective; however, an amendment to FAS 115 Accounting
for Certain Investments in Debt and Equity Securities applies to all
entities with available for sale or trading securities. Some
requirements apply differently to entities that do not report net
income. SFAS No. 159 is effective as of the beginning of an entity's
first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of the previous fiscal year provided
that the entity makes that choice in the first 120 days of that fiscal
year and also elects to apply the provisions of SFAS No. 157 Fair Value
14
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies (continued)
Measurements. The Company will adopt SFAS No. 159 beginning March 1,
2008 and is currently evaluating the potential impact the adoption of
this pronouncement will have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements
that fair value is the relevant measurement attribute. Accordingly,
this statement does not require any new fair value measurements.
However, for some entities, the application of this statement will
change current practice. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial
statements for an interim period within that fiscal year. The Company
will adopt this statement March 1, 2008, and it is not believed that
this will have an impact on the Company's consolidated financial
position, results of operations or cash flows.
Reclassification
Certain reclassifications may have been made in prior years' financial
statements to conform to classifications used in the current year.
Note 2 - Long-term Debt
The Company does not have any long-term debt.
Note 3 - Other Commitments and Contingencies
Lease Agreement
Current manufacturing operations include 18,000 square feet for general
manufacturing, CNC and manual machining, and final assembly, 5,000
square feet for welding, painting, and fabrication operations, and
10,000 square feet for administration (lease purchase at $8,500 per
month).
Note 4 - Significant Cash and/or Stock Based Acquisitions of Assets
In three separate transactions involving cash and/or stock, the Company
acquired $400,000 in finished goods inventory from RSGA International,
Inc., $1 million in components and finished goods inventory from ATK of
Oklahoma, Inc., and $13 million in intellectual property from the
Highland Group AB (the Swedish company which caused US Highland, Inc.
15
US Highland, Inc.
Notes to Financial Statements
For The Three and Six Months Ended June 30, 2010
(Unaudited)
Note 4 - Significant Cash and/or Stock Based Acquisitions of Assets
(continued)
to be formed and from which US Highland, Inc. acquired most of its
assets, its brand name, some of the members of the US Highland
management team, and the US Highland product line).
Note 5 - Subsequent Event
The Company experienced the sudden loss of the COO, CFO and President
on July 10th 2010 in a plane crash. The COO and CFO have been replaced
and the appropriate SEC filings have been made to reflect these
changes.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Overview
The following Management's Discussion and Analysis is intended to help
the reader understand our company. It is provided as a supplement to,
and should be read in conjunction with, our financial statements and
the accompanying notes.
Forward-Looking Statements
Historical results and trends should not be taken as an indication of
future operations. Management's statements contained in this report
that are not historical facts are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results may differ
materially from those included in the forward-looking statements. The
Company intends such forward-looking statements to be covered by the
safe-harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of complying with those safe-harbor provisions.
Forward-looking statements, which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "may," "should," "could,"
"believe," "expect," "anticipate," "estimate," "project," "prospects,"
or similar expressions. The Company's ability to predict results or the
actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse affect on the operations
and future prospects of the Company include, but are not limited to:
changes in economic conditions, legislative/regulatory changes, the
availability of capital, interest rates, and the competitive
environment. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be
placed on such statements. Further information concerning the Company
and its business; including additional factors that could materially
affect the Company's financial results, are included herein and in the
Company's other filings with the Securities and Exchange Commission.
The following discussion and analysis should be read in conjunction
with the financial statements and notes to financial statements
included elsewhere in this quarterly report on Form 10-Q. This report
and the financial statements and notes to financial statements contain
forward-looking statements, which generally include the plans and
objectives of management for future operations, including plans and
objectives relating to future economic performance and our current
beliefs regarding revenues we might earn if we are successful in
implementing our business strategies. The Company does not undertake to
update, revise or correct any forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
------------------------------
OVERVIEW
Our principal sources of liquidity are existing cash, cash generated by
our operations, and our ability to borrow cash or obtain equity
investment when needed from a number of related parties.
17
Our principal uses of liquidity are funding growth opportunities and
paying the costs and expenses associated with our operations.
The Company experienced significant growth in assets during the first
quarter of 2010, in a combination of components inventory, finished
goods inventory, and intellectual property.
In April 2010, the Company received approximately $762,404 in a private
offering, substantially increasing the Company's cash reserves.
The credit of the officers and directors for guaranteeing any loan
necessary is extremely strong. The company has not established any
lines of credit with any banks. In the event a supplier or lender
requires additional credit to obtain small equipment or other business
supplies, our officers and directors are willing to extend their credit
to accomplish the purchase.
OPERATING ACTIVITIES
--------------------
During the second quarter of 2010, the Company used $1,736,342 of cash
equivalent, including various acquisitions of assets in partial cash
and partial stock transactions, in operating activities.
In the opinion of management, it is not useful to provide an analysis
or comparison of the results of prior years as the Company has
materially changed its business plan and operations from prior years to
recreational powersports from operations unrelated to recreational
powersports, resulting in entirely new financial performance
characteristics. The Company's first quarter revenues are much better
than management expectations, primarily derived from engineering
development and business development activities. The Company will
continue to develop revenue from similar activities and plans on
supplementing engineering development and business development revenues
with revenues from manufacturing operations later this year.
Results of Operations for the three months ended June 30, 2010
Revenues:
During this quarter the Company has total revenues of $601,133.
Historically through its roots with the Swedish company the Highland
Group AB, the Company has generated substantial revenues from
engineering development and business development activities. These
activities are likely to continue to remain a significant source of
revenues for the Company, in addition to revenues generated from
manufacturing and sales of the Company's motorcycles, quads, and
engines, planned for formal production startup later this year after
the production ramp up is complete.
Cost of Goods Sold:
Cost of goods sold for the period was $138,976. As the Company
completes its production ramp activities and commences selling its
manufactured products, cost of goods sold are projected to increase
substantially, primarily proportionately to revenues from manufacturing
operations.
18
Net Income:
Net income for the period is $84,971, which is higher than expected for
the period. The Company expects to generate most of its 2010 revenues
near year end after production startup.
Operating Expenses:
Operating expenses for the period total $335,883. Operating expenses
are anticipated to increase at a much slower rate than cost of goods
sold proportional to revenues from manufacturing operations.
Comparison of Balance Sheet for June, 30, 2010 and December 31, 2009 as
it pertains to Capital and Liquidity.
Cash and Equivalents:
At the end of the period, the Company had $63,798 in cash; however,
immediately after the period ended the Company received $762,404 in
cash from the sale of restricted stock in a private offering. The
Company also has approximately $5.8 million in inventory.
Accounts Receivable:
The Company has total receivables of $24,061.
Total Current Liabilities:
The Company has total current liabilities of $272,523.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for a smaller reporting company
ITEM 4: CONTROLS AND PROCEDURES
During the three months ended June 30, 2010, there were no changes in
our internal controls over financial reporting (as defined in Rule 13a-
15(f) and 15d-15(f) under the Exchange Act) that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we
conducted an evaluation of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e) and Rule 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, as
of June 30, 2010. Based on this evaluation, our chief executive
officer and chief principal financial officer have concluded such
controls and procedures to be effective as of June 30, 2010 to ensure
that information required to be disclosed by the issuer in the reports
that it files or submits under the Act is recorded, processed,
summarized and reported, within the time periods specified in the
Commission's rules and forms and to ensure that information required to
be disclosed by an issuer in the reports that it files or submits under
19
the Act is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
20
PART II
ITEM 1. Legal Proceedings
None
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities:
None
ITEM 4 (Removed and Reserved)
ITEM 5 Other Information:
None
Item 6 Exhibits
31 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
32 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
/s/Steven Moel
-------------------------
Steven Moel
Chief Executive Officer Dated: August 20, 2010
/s/Michael La Lond
-------------------------
Chief Financial Officer Dated: August 20, 2010