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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
Registration Statement
Under the Securities Act of 1933
US Highland, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Oklahoma 3751 26-4144571
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
US Highland, Inc. Damian Riddoch
17424 South Union Ave. 17424 South Union Ave.
Mounds, OK 74047 Mounds, OK 74047
918-827-5254 918-827-5254
(Address, and telephone number (Name, address and telephone number
of principal executive offices) of agent for service)
Copies to:
Ms. Jody Walker ESQ.
7841 South Garfield Way
Centennial, CO 80122
Phone 303-850-7637 Fax 303-482-2731
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. []
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box [x]
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CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF AMOUNT PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE BEING MAXIMUM MAXIMUM REGISTRATION
REGISTERED REGISTERED OFFER PRICE AGGREGATE FEE
PER SHARE OFFER PRICE
Common Stock 1,880,087 1.50 $2,820,131 $201.08
Common Stock(1) 609,913 1.50 914,869 65.23
(1)Represents common stock being sold on behalf of selling security
holders.
US Highland amends this registration statement on such date or dates as
may be necessary to delay its effective date until US Highland shall
file a further amendment which specifically states that this
registration statement shall hereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
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Preliminary Prospectus Dated June 18, 2010. SUBJECT TO COMPLETION
$2,820,131
Up to a maximum of 1,880,087 common shares at $1.50 per Common Share
609,913 common shares on behalf of selling security holders
US Highland, Inc.
US Highland is offering up to 1,880,087 common shares at the purchase
price of $1.50 per common share for the aggregate offering price of
$2,820,131.
We are registering 609,913 common shares on behalf of selling security
holders. We will not receive any cash or other proceeds in connection
with the subsequent sale by the selling security holders.
The 609,913 common shares included in this prospectus may be offered
and sold directly by the selling security holders. The selling
security holders may sell at prevailing prices or privately negotiated
prices. We will not control or determine the price at which a selling
security holder decides to sell its shares. Brokers or dealers
effecting transactions in these shares should confirm that the shares
are registered under applicable state law or that an exemption from
registration is available.
The offering will commence on the effective date of this prospectus and
will terminate on or before June 30, 2011.
Our common stock is currently listed on the NASD Over-The-Counter
Bulletin Board under the symbol UHLN.
We will sell the common shares ourselves and do not plan to use
underwriters or pay any commissions. We will be selling our common
shares using our best efforts and no one has agreed to buy any of our
common shares. There is no minimum amount of common shares we must sell
so no money raised from the sale of such common shares will go into
escrow, trust or another similar arrangement.
Consider carefully the risk factors beginning on page 7 in this
prospectus.
Neither the SEC nor any state securities commission has approved these
common shares or determined that this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
4
Proceeds of the Offering
Per Common Share Total
Offering Price $1.50 $2,820,131
Proceeds to US Highland, before expenses $1.50 $2,820,131
5
TABLE OF CONTENTS
Prospectus Summary 6
Risk Factors 7
Forward Looking Statements 13
Use of Proceeds 14
Dilution 15
Plan of Distribution and Selling Security Holders 15
Business Operations 18
Dividend Policy 25
Determination of Offering Price 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
Directors, Executive Officers and Control Persons 28
Security Ownership of Certain Beneficial Owners
and Management 34
Certain Relationships and Related Transactions 35
Description of Capital Stock 36
Shares Eligible for Future Sale 37
Disclosure of Commission Position on Indemnification
for Securities Act liabilities 38
Market for Common Stock and Related Stockholder Matters 38
Experts 40
Legal Proceedings 40
Legal Matters 40
Where You Can Find More Information 40
Financial Statements 41
6
PROSPECTUS SUMMARY
To understand this offering fully, you should read the entire prospectus
carefully, including the risk factors beginning on page 6 and the
financial statements.
Corporate
Operations US Highland is a recreational powersports
product development company and OEM. US
Highland's proprietary products include a 250-
550cc single cylinder 4 stroke engine line, a
750-1150cc v-twin engine line, a quad product
line, and a motorcycle product line.
Common stock
outstanding 21,462,500
Common stock being
sold in this offering 1,880,087 common shares to be reissued from
treasury shares
Common Shares being
sold in this offering
by selling security
holders 609,913
Sales by Selling
Security Holders The selling security holders may sell at
prevailing prices or privately negotiated
prices.
We are registering common shares on behalf of
the selling security holders in this
prospectus. We will not receive any cash or
other proceeds in connection with the
subsequent sales. We are not selling any
common shares on behalf of selling security
holders and have no control or affect on the
selling security holders.
Termination of the
Offering The offering will commence on the effective date
of this prospectus and will terminate on or
before June 30, 2011.
Market for our common
stock Our common stock is quoted on the OTC Electronic
Bulletin Board under the symbol UHLN. We cannot
provide any assurance that an active market in
our common stock will develop.
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RISK FACTORS
Our business is subject to numerous risk factors, including the
following.
1. We cannot offer any assurance as to our future financial results.
You may lose your entire investment.
We have generated limited revenues in 2010, primarily from business
development activities, including contract engineering and licensing.
We are gearing up for volume production, targeted to start later this
year. We cannot assure that we can operate in a profitable manner. As
a result, future financial results are uncertain. You may lose your
entire investment.
2. Our capitalization is limited. We may never reach profitable
operations.
If unforeseen circumstances occur, our capitalization may be such that,
even following completion of this offering, our management may be unable
to implement our expanded plan of operation.
3. Our operations have limited diversity. If we are unable to
successfully generate revenues from our current activities, we may not
be able to obtain profitable operations.
We will create revenues through 1) sales and manufacturing of our
products, 2) license and distribution agreements, and 3) engineering
development projects for other OEMs. Financial viability will depend on
our ability to generate revenues from these three revenue generating
activities.
4. Loss of our key executive(s) and our failure to attract qualified
management could limit our growth and negatively impact our operations.
We depend highly upon our officers and directors; however, we do have
limited skillset redundancy. As our operations increase, we will
require operations management personnel with experience to our business.
The loss of the services of any officer or director or the inability to
hire experienced operations management personnel could materially
adversely affect our operations and financial condition.
5. We may obtain directors' and officers' liability insurance. The
cost of this insurance may be expensive to maintain.
US Highland may, at its discretion, obtain directors' and officers'
liability insurance. Such insurance is generally expensive to maintain.
If US Highland is unable to obtain and maintain director and officer
liability insurance to cover amounts, if any, required to be indemnified
by US Highland, any payments made by US Highland under an
indemnification agreement will have a negative material effect on US
Highland's earnings and cash flow.
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6. We sell our products at wholesale and must rely on a network of
independent dealers and distributors to manage the retail distribution
of our products. We could face adverse consequences related to the
termination of any of these relationships or inability to secure
sufficient numbers of dealers and distributors.
We depend on the capability of our independent dealers and distributors
to develop and implement effective retail sales plans to create demand
among retail purchasers for the motorcycles and related products and
services that the dealers and distributors purchase from the registrant.
If our independent dealers and distributors are not successful in these
endeavors, we will be unable to maintain or grow our revenues and meet
our financial expectations. Further, independent dealers and
distributors may experience difficulty in funding their day-to-day cash
flow needs and paying their obligations because of weakened retail sales
and tightening credit. If dealers are unsuccessful, they may exit or be
forced to exit the business or, in some cases, we may seek to terminate
relationships with certain dealerships. As a result, we could face
additional adverse consequences related to the termination of dealer
relationships. Additionally, liquidating a former dealer's inventory of
new and used motorcycles can add downward pressure on new and used
motorcycle prices. Further, the unplanned loss of any of our
independent dealers may lead to inadequate market coverage for retail
sales of new motorcycles and for servicing previously sold motorcycles,
create negative impressions of the registrant with our retail customers,
and adversely impact our ability to collect wholesale receivables that
are associated with that dealer.
7. Our dealers may experience a decline in retail sales resulting from
general economic conditions, tightening of credit, political events or
other factors.
The motorcycle industry has been affected by general economic conditions
over which motorcycle manufacturers have little control. These factors
have caused a weaker retail environment leading to weaker demand for
discretionary purchases, and the decision to purchase a motorcycle has
been and may continue to be affected by these factors. The related
tightening of credit has led to more limited availability of funds from
financial institutions and other lenders and sources of capital which
ahs adversely affected and could continue to adversely affect the
ability of retail consumers to obtain loans for the purchase of
motorcycles from lenders. Should general economic conditions or
motorcycle industry demand continue to decline, our results of
operations and financial condition may be adversely affected. The
motorcycle industry can also be affected by political conditions and
other factors over which motorcycle manufacturers have little control.
8. Our dealers may experience a decline in retail sales resulting from
declining prices for used motorcycles and excess supplies of new
motorcycles.
We have observed that prices for used motorcycles have declined in
recent years, which may have the effect of reducing demand among retail
purchasers for new motorcycles, at manufacturer's suggested retail
prices. While we will attempt to monitor production of our new
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motorcycles in an effort to keep supply in line with demand, our
competitors could choose to supply additional new motorcycles to the
market at reduced prices which could also have the effect of reducing
demand for new motorcycles (at manufacturer's suggested retail prices).
Ultimately, reduced demand among retail purchasers for new motorcycles
will lead to reduced shipments by the registrant.
9. We may not be able to successfully execute our manufacturing
strategy.
Our manufacturing strategy is designed to continuously improve product
quality, increase productivity, reduce costs and increase flexibility to
respond to changes in the marketplace. Management believes flexible
manufacturing, including flexible supply chains and flexible labor
agreements, is the key element to enable improvements in our ability to
respond to customers in a cost effective manner. To implement this
strategy, we must be successful in our continuous improvement efforts
which are dependent on the involvement of management, production
employees and suppliers. Any inability to achieve these objectives
could adversely impact the profitability of the registrant's products
and its ability to deliver the right product at the right time to the
customer.
10. The registrant and relies on third party suppliers to obtain raw
materials and provide component parts for use in the manufacture of its
motorcycles.
We cannot be certain that we will not experience supply problems such as
unfavorable pricing or untimely delivery of raw materials and
components. In certain circumstances, we rely on a single supplier to
provide the entire requirement of a specific part, and a change in this
established supply relationship may cause disruption in our production
schedule. In addition, the price and availability of raw materials and
component parts from suppliers can be adversely affected by factors
outside of our control such as the supply of a necessary raw material.
Further, our suppliers may experience difficulty due to financial market
disruption in funding their day-to-day cash flow needs because of
tightening credit, and those suppliers who also serve the automotive
industry may be experiencing financial difficulties due to a downturn in
that industry, which could adversely affect their ability to supply the
registrant. These supplier risks may have a material adverse effect on
the registrant's business and results of operations.
11. Government actions to stabilize credit markets in 2009 are
scheduled to end in 2010 which could have a negative impact on capital
markets.
In 2009, the U.S. Government enacted legislation and created several
programs to help stabilize credit markets and financial institutions and
restore liquidity, including the Federal Reserve's Commercial Paper
Funding Facility and the Federal Reserve Bank of New York's Term Asset-
backed securities Loan Facility program, both of which are scheduled to
10
expire in 2010. The expiration of these programs could have a negative
impact on capital markets and limit our access to capital market
funding. These negative consequences may in turn adversely affect our
business and results of operations in various ways, including through
higher costs of capital, reduced funds available through its financial
services operations to provide loans to independent dealers and their
retail customers, and dilution to existing shareholders through the use
of alternative sources of capital.
12. We have a number of competitors of varying sizes that are based
both inside and outside the United States some of which have greater
financial resources than the registrant.
Many of our competitors are more diversified than the registrant, and
they may compete in the automotive market or all segments of the
motorcycle market. Also, the registrant's manufacturer's suggested
retail price for its motorcycles is generally higher than its
competitors, and if price becomes a more important competitive facts or
for consumers in the heavyweight motorcycle market, the registrant may
be at a competitive disadvantage. Failure to adequately address and
respond to these competitive pressures worldwide and in the United
States may have a material adverse effect on the registrant's business
and results of operations.
Our ability to remain competitive is dependent upon its capability to
develop and successfully introduce new, innovative and compliant
products. The motorcycle market continues to advance in terms of cutting
edge styling and new technology and, at the same time, be subject to
increasing regulations related to safety and emissions. We must continue
to distinguish our products from our competitors' products with unique
styling and new technologies and to protect its intellectual property
from imitators. The registrant must also be able to design and
manufacture these products and deliver them to the marketplace in an
efficient and timely manner. There can be no assurances that the
registrant will be successful in these endeavors or that existing and
prospective customers will like or want our new products.
13. Our operations are dependent upon attracting and retaining skilled
employees, including executive officers. Our future success depends on
its continuing ability to identify, hire, develop, motivate and retain
skilled personnel for all areas of its organization.
Our current and future total compensation arrangements, which include
benefits and cash bonuses, may not be successful in attracting new
employees and retaining and motivating our existing employees. If the
registrant does not succeed in attracting personnel or retaining and
motivating existing personnel, including executive officers, we may be
unable to develop and distribute products and services and effectively
execute its plans and strategies.
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14. We manufacture products that create exposure to product liability
claims and litigation.
To the extent plaintiffs are successful in showing that personal injury
or property damage result from defects in the design or manufacture of
our products, we may be subject to claims for damages that are not
covered by insurance. The costs associated with defending product
liability claims, including frivolous lawsuits, and payment of damages
could be substantial. Our reputation may also be adversely affected by
such claims, whether or not successful.
15. We must comply with governmental laws and regulations that are
subject to change and involve significant costs.
Our sales and operations in areas outside the U.S. may be subject to
foreign laws, regulations and the legal systems of foreign courts or
tribunals. These laws and policies governing operations of foreign-based
companies may result in increased costs or restrictions on the ability
of the Company to sell its products in certain countries. Our
international sales operations may also be adversely affected by United
States laws affecting foreign trade and taxation.
We are subject to income and non-income based taxes in the United States
and in various foreign jurisdictions. Significant judgment is required
in determining our worldwide income tax liabilities and other tax
liabilities. Management believes that it complies with applicable tax
law. If the governing tax authorities have a different interpretation of
the applicable law or if there is a change in tax law, our financial
condition and/or results of operations may be adversely affected.
Our domestic sales and operations are subject to governmental policies
and regulatory actions of agencies of the United States Government,
including the Environmental Protection Agency, SEC, National Highway
Traffic Safety Administration, Department of Labor and Federal Trade
Commission. In addition, our sales and operations are also subject to
laws and actions of state legislatures and other local regulators,
including dealer statutes and licensing laws. Changes in regulations or
the imposition of additional regulations may have a material adverse
effect on our business and results of operations.
Our motorcycle products use internal combustion engines. These
motorcycle products are subject to statutory and regulatory requirements
governing emissions and noise, including standards imposed by the EPA,
state regulatory agencies, such as California Air Resources Board, and
regulatory agencies in certain foreign countries where our motorcycle
products are sold. We are also subject to statutory and regulatory
requirements governing emissions and noise in the conduct of our
manufacturing operations. Any significant change to the regulatory
requirements governing emissions and noise may substantially increase
the cost of manufacturing our products. Further, in response to concerns
about global climate changes, we may face greater regulatory or customer
pressure to develop products that generate less emissions. This may
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require us to spend additional funds on research, product development,
implementation costs and subject us to the risk that our competitors may
respond to these pressures in a manner that gives them a competitive
advantage.
9. Changes in the foreign exchange rate could negatively affect our
profitability.
We face foreign exchange rate exposure. We will offer payment for our
products and services in U.S. dollars except for our Canadian customers
who will pay us in Canadian dollars. We carry out all fundraising in
U.S. dollars. With the majority of expenses expected to be in United
States dollars, we will be exposed to fluctuations in foreign exchange
rates from both a transactional and transnational perspective. There is
a risk that foreign exchange rate fluctuations between the Canadian
dollar and the U.S. dollar will be disadvantageous to us.
Risk Factors relating to the offering.
1. We have no underwriter for our offering and cannot guarantee how
much, if any, of the offering will be sold.
The common shares are being offered by us on a best efforts basis by our
officers and directors. We have not retained an underwriter to assist
in offering the common shares. Our officers and directors plan to sell
this offering. Our officers and directors have limited experience in
the offer and sale of securities on behalf of an issuer. As a result,
they may be unable to sell any of the common shares.
2. There is no minimum offering amount or a formal escrow account.
There is no minimum offering amount. All of the proceeds will be
deposited directly into our operating account. We have not set up an
escrow account, trust account or made other similar arrangements.
3. The initial price of $1.50 may have little or no relationship to
the market price.
The offering price of the common shares has been arbitrarily determined
without regard to the book value or market value of our securities. The
initial prices may have little no relationship to the market price.
Active trading markets generally result in lower price volatility and
more efficient execution of buy and sell orders for investors.
4. Our securities will be a "penny stock" under the federal securities
regulation. The special rules applicable to the sale of penny stocks may
make our stock less liquid and harder for investors to buy and sell our
shares.
Under the rules of the Securities and Exchange Commission, our
securities will come within the definition of a "penny stock" because
the price of our securities is below $5.00 per share. As a result, our
securities will be subject to the "penny stock" rules and regulations,
13
if a market ever develops. Broker-dealers who sell penny stocks to
certain types of investors are required to comply with the Commission's
regulations concerning the transfer of penny stock. These regulations
require broker-dealers to:
- Make a suitability determination prior to selling penny stock to
the purchaser,
- Receive the purchaser's written consent to the transaction; and
- Provide certain written disclosures to the purchaser.
These requirements may restrict the ability of broker/dealers to sell
our securities, and may affect the ability to resell our securities. An
investment in our securities is not likely to be very liquid, and
because of the additional requirements, many brokers do not participate
in penny stock transactions. As a result, you may have a harder time
buying or selling our shares.
FORWARD LOOKING STATEMENTS
The statements contained in this prospectus that are not historical fact
are forward-looking statements which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may,"
"should," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. We have made the forward-looking
statements with management's best estimates prepared in good faith.
Because of the number and range of the assumptions underlying our
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond our
reasonable control, some of the assumptions inevitably will not
materialize and unanticipated events and circumstances may occur
subsequent to the date of this prospectus.
These forward-looking statements are based on current expectations, and
we will not update this information other than required by law.
Therefore, the actual experience of US Highland, and results achieved
during the period covered by any particular projections and other
forward-looking statements should not be regarded as a representation by
US Highland, or any other person, that we will realize these estimates
and projections, and actual results may vary materially. We cannot
assure you that any of these expectations will be realized or that any
of the forward-looking statements contained herein will prove to be
accurate.
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USE OF PROCEEDS
If the entire offering amount is reached, US Highland shall receive
gross proceeds of $2,820,131. Based on US Highland's present plans,
which represent the existing and anticipated business conditions, US
Highland intends to apply the estimated net proceeds of the offering
over the next twelve months as follows:
Gross proceeds $ 2,820,131 $ 1,410,065
Offering expenses 58,491 58,491
----------- -----------
Net proceeds $ 2,761,640 $ 1,351,574
Purchase of tooling and equipment 1,500,000 785,000
Building/property improvements 250,000 100,000
Working Capital 1,011,640 466,574
----------- -----------
Net proceeds expended $ 2,761,640 $ 1,351,574
Gross proceeds $ 705,033 $ 352,516
Offering expenses 58,491 58,491
----------- -----------
Net proceeds $ 646,542 $ 294,025
Purchase of tooling and equipment 342,500 153,000
Building improvements 50,000 100,000
Working Capital 254,042 41,025
----------- -----------
Net proceeds expended $ 646,542 $ 294,025
Working capital will include but are not limited to:
- Production lines, including manufacturing equipment and tooling
- Inventory
- Business development costs
- Professional services
Additionally, our uses of funds for general corporate purposes are,
including but not limited to sales and marketing expense, income taxes,
interest expense, commissions, administrative expenses, and capital
expenditures.
The foregoing use of proceeds is a good faith estimate and is not
conclusive. If the board of directors of US Highland deems it necessary
and in US Highland's best interest to modify the use of the proceeds at
a later time, it will do so.
We will not receive any proceeds from the resale of securities by
selling security holders.
15
DILUTION
The common shares being sold in this offering will be reissued from
treasury shares. Assuming completion of the offering, there will still
be 21,462,500 common shares outstanding. The following table
illustrates the per common share dilution that may be experienced by
investors at various funding levels.
Funding Level $2,805,131 $1,395,065 $690,033 $337,516
---------- ---------- -------- --------
Offering price $1.50 $1.50 $1.50 $1.50
Net tangible book
value per common
share before offering .92 .92 .92 .92
Increase per common
share attributable to
investors .13 .06 .03 .02
----- ----- ----- -----
Pro forma net tangible
book value per
common share after
offering 1.05 .98 .95 .94
----- ----- ----- ------
Dilution to investors .45 .52 .55 .56
Dilution as a
percentage of
offering price 30% 35% 37% 37%
Based on 21,462,500 common shares outstanding as of March 31, 2010 and
total stockholder's equity of $19,781,321 utilizing unaudited March 31,
2010 financial statements.
Further Dilution
----------------
US Highland may issue equity and debt securities in the future. These
issuances and any sales of additional common shares may have a
depressive effect upon the market price of the registrant's common
shares and investors in this offering.
PLAN OF DISTRIBUTION AND SELLING SECURITY HOLDERS
This prospectus relates to the sale of 1,880,087 common shares and the
resale of 609,913 common shares by the selling security holders. The
1,880,087 common shares will be reissued from treasury shares.
We will sell the common shares ourselves and do not plan to use
underwriters or pay any commissions. We will be selling our common
shares using our best efforts and no one has agreed to buy any of our
common shares. This prospectus permits our officers and directors to
sell the common shares directly to the public, with no commission or
other remuneration payable to them for any common shares they may sell.
16
There is no plan or arrangement to enter into any contracts or
agreements to sell the common shares with a broker or dealer. Our
officers and directors will sell the common shares and intend to offer
them to friends, family members and business acquaintances. There is no
minimum amount of common shares we must sell so no money raised from the
sale of our common shares will go into escrow, trust or another similar
arrangement.
The offering will commence on the effective date of this prospectus and
will terminate on or before June 30, 2011, unless extended by us for an
additional 90 days.
The common shares are being offered by Mats Malmberg, an officer and
director of the registrant. Mr. Malmberg will be relying on the safe
harbor in Rule 3a4-1 of the Securities Exchange Act of 1934 to sell the
common shares. No sales commission will be paid for common shares sold
by Mr. Malmberg. Mr. Malmberg is not subject to a statutory
disqualification and is not an associated person of a broker or dealer.
Additionally, Mr. Malmberg primarily performs substantial duties on
behalf of the registrant otherwise than in connection with transactions
in securities. Mr. Malmberg has not been a broker or dealer or an
associated person of a broker or dealer within the preceding 12 months
and he has not participated in selling an offering of securities for any
issuer more than once every 12 months other than in reliance on
paragraph (a)4(i) or (a)4(iii) of Rule 3a4-1 of the Securities Exchange
Act of 1934.
There are no finders.
Under the rules of the Securities and Exchange Commission, our common
stock will come within the definition of a penny stock because the price
of our common stock on the OTC Bulletin Board is below $5.00 per share.
As a result, our common stock will be subject to the penny stock rules
and regulations. Broker-dealers who sell penny stocks to certain types
of investors are required to comply with the Commission's regulations
concerning the transfer of penny stock. These regulations require
broker-dealers to:
- Make a suitability determination prior to selling penny stock to
the purchaser;
- Receive the purchaser's written consent to the transaction; and
- Provide certain written disclosures to the purchaser.
These requirements may restrict the ability of broker/dealers to sell
our common stock, and may affect the ability to resell our common stock.
The selling security holders may sell their common shares at prevailing
market prices or privately negotiated prices.
If the selling security holders engage in short selling activities, they
must comply with the prospectus delivery requirements of Section 5(b)(2)
of the Securities Act.
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Pursuant to Regulation M of the Securities Act, the selling security
holders will not, directly or indirectly, bid for, purchase, or attempt
to induce any person to bid for or purchase their common shares during
the offering except for offers to sell or the solicitation of offers to
buy and unsolicited purchases that are not effected from or through a
broker or dealer, on a securities exchange or through an inter-dealer
quotation system or electronic communications network.
The table below sets forth information with respect to the resale of
shares of common stock by the selling security holders. We will not
receive any proceeds from the resale of common stock by the selling
security holders for shares currently outstanding.
US Highland shall register, pursuant to this prospectus 609,913 common
shares currently outstanding for the account of 10 individuals or
entities. The percentage owned prior to and after the offering assumes
the sale of all of the common shares being registered on behalf of the
selling security holders.
# of Shares Total Shares Total Shares %
Being Before After After
Registered Offering Offering Offering
----------- ------------ ------------ --------
Baurus Co. Limited(1) 85,000 85,000 0 0%
Ingemar Brorsson 167,170 1,338,895 1,171,725 5.46%
Iron Invest AB(2) 111,200 111,200 0 0%
Marcus Bjornsson 11,068 11,068 0 0%
Mikael Svenfelt 14,412 14,412 0 0%
Olof Svenfelt 111,200 111,200 0 0%
Richard Goglia 10,000 10,000 0 0%
Ullared Netto AB(3) 55,622 55,622 0 0%
WP Intressenter(4) 33,194 33,194 0 0%
Beslag & Metall(5) 11,047 11,047 0 0%
(1) An unaffiliated entity controlled by Bjorn Ohlsen. The entity is
neither a registered broker-dealer nor an affiliate of registered
broker-dealers.
(2) An affiliated entity controlled by Mats Malmberg, an officer and a
director of the registrant. The entity is neither registered broker-
dealer nor an affiliate of registered broker-dealers.
(3) An unaffiliated entity controlled by Frank Gunnarsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(4) An unaffiliated entity controlled by Christer Wagenius. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(5) An unaffiliated entity controlled by Marcus Bjornsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
18
The 609,013 shares offered by the selling security holders may be sold
by one or more of the following methods, without limitation:
- ordinary brokerage transactions and transactions in which the
broker solicits purchases; and
- face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the
selling security holders may arrange for other brokers or dealers to
participate.
Brokers or dealers may receive commissions or discounts from the selling
security holders in amounts to be negotiated. Brokers and dealers and
any other participating brokers or dealers may be deemed to be
underwriters within the meaning of the Securities Act, in connection
with any sales.
The selling security holder or dealer effecting a transaction in the
registered securities, whether or not participating in a distribution,
is required to deliver a prospectus.
As a result of these shares being registered under the Securities Act,
selling security holders who subsequently resell the shares to the
public themselves may be deemed to be underwriters with respect to the
shares of common stock for purposes of the Securities Act with the
result that they may be subject to statutory liabilities if the
registration statement to which this prospectus relates is defective by
virtue of containing a material misstatement or omitting to disclose a
statement of material fact. We have agreed to indemnify the selling
security holders regarding such liability.
Under the Securities Act of 1933, the selling security holders will be
considered to be underwriters of the offering. The selling security
holders may have civil liability under Section 11 and 12 of the
Securities Act for any omissions or misstatements in the registration
statement because of their status as underwriters. We may be sued by
selling security holders if omissions or misstatements result in civil
liability to them.
BUSINESS OPERATIONS
Corporate History
-----------------
US Highland, Inc. was originally formed as a Limited Liability Company
on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to
the laws of the State of Oklahoma. On February 26, 1999, an amendment
was filed that changed the name of the entity to Powerhouse Productions,
L.L.C.
On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of
Conversion changing the entity from a limited liability company to a
corporation under the name Harcom Productions, Inc. On November 29,
2006, articles of amendment to the certificate of incorporation
increased the authorized common shares to 100,000,000 with a par value
of $0.01 per share.
19
On January 25, 2010, Articles of Merger were filed with the state of
Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into
Harcom Productions, Inc. Pursuant to the Articles of Merger, the name
of the corporation was changed from Harcom Productions, Inc. to US
Highland, Inc.
Prior Operations
----------------
Prior to January 25, 2010, the registrant offered professional
consulting in Music-on-Hold and messaging services as well some
equipment sales and consultation services for commercial clients.
Subsequent to the merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intended to pursue its business
plan. As a result, the registrant entered into an Asset Purchase
Agreement with Shane Harwell, an officer and director of the Registrant.
Pursuant to the Asset Purchase Agreement dated December 21, 2009, the
registrant sold all rights, title and interest to the Purchased Assets
to Mr. Harwell for the consideration of 950,000 common shares. The
950,000 common shares consisted of 468,750 common shares directly held
by Mr. Harwell, 468,750 common shares acquired by Mr. Harwell from Susan
Harwell, his wife and 12,500 common shares acquired by Mr. Harwell from
Charles Harwell, his father for nominal amounts.
Current Corporate Operations
----------------------------
US Highland recently acquired its manufacturing equipment and tooling
from and is currently gearing up to manufacture its products in Mounds,
Oklahoma which is adjacent to Tulsa, Oklahoma. US Highland requires the
services of many manufacturing subcontractors, as is typical for the
industry. The registrant has just consolidated to larger facilities.
US Highland's business development strategy includes:
- Multinational Business Model. US Highland will manufacture in
the United States. In house product development engineering and
contract engineering will continue primarily in Sweden.
- Acquisitions. As funds allow, US Highland intends
1) to ramp up to much higher production levels,
2) to launch marketing in the US and Europe, and
3) to fund strategic acquisitions to offer enhanced share value for US
Highland shareholders.
- Road Shows. US Highland will utilize road shows to promote its
stock, brand, and products.
- Media Promotions. US Highland will fully employ both traditional
and marketing venues to advertise, promote, and drive US Highland brand
awareness utilizing the following:
- Internet promotions
- Trade shows and events, including the Indianapolis Dealer Expo
and others
- Trade publication advertisements
- Trade publication editorials and product reviews
20
- Trade and Business Wire press releases
- Marketing collateral
- US Highland Pro Race Team. US Highland will attract media
attention with the US Highland Pro Race Team at high profile race
events.
- Dealer Network Building and Mass Customization. US Highland will
market direct to qualified high end dealers to build and develop the US
Highland dealer network.
- OEM Deals. US Highland will develop license and other OEM deals
and use co-branding and co-marketing activities to further its business
development objectives.
Products
--------
US Highland products include single and twin cylinder engines,
motorcycles and All Terrain Vehicles.
Single and Twin Cylinder Engines
US Highland has two powerful engine platforms, including its single
cylinder 250-550cc engines and its two cylinder, V-twin 750-1150cc
engines. These engines were developed and refined in US Highland's
active race program. US Highland proprietary power plants are
lightweight, high horsepower, and fuel injected. US Highland engines
also use the proprietary and patent pending US Highland throttle body,
which delivers smooth, linearly proportional throttle response unlike
conventional systems that deliver uneven throttle response.
Motorcycle and Quad Product Line
The new US Highland product line is composed of the following vehicles,
not all of which will be released in the next model year. These
vehicles are based on the US Highland 250-550cc and 750-1150cc engine
platforms:
- 350cc Entry Level Dual Sport
- 450cc MX, Enduro, & Supermotard
- 507cc MX, Enduro, & Supermotard
- 950cc Street Tracker, Dirt Tracker, Outback, & Urban Assault
- 1050cc Viking
- Quads of various sizes
Patents, Trademarks, Intellectual Property, and Proprietary Protection
----------------------------------------------------------------------
US Highland has developed a patent pending throttle body which allows
linear proportional air flow control to the engine. Conventional
throttle bodies do not have linear response, requiring operators to
mentally adjust to uneven response from the throttle.
21
The Market, Sales, and Business Development
-------------------------------------------
US Highland Target Markets
US Highland will target the dual market, off-road and on-road motorcycle
markets with its initial market entry fully capitalizing on its current
product offering. These market segments are to be reached through
qualified dealerships.
US Highland has plans to sell to the All Terrain Vehicle and possibly
Utility Vehicle markets in the future with new products currently in
development.
Industry Analysis
Market data for the motorcycle industry shows that the industry is down
in most market segments, illustrating generally poor expected
performance of the powersports industry during 2009.
It is important to note that 45% for on-road motorcycles plus 10.5% for
off-road motorcycles show motorcycles clearly to be the largest market
segment.
Japanese manufacturers collectively dominate powersports market share,
with Honda as the largest OEM, followed by Yahama and Kawasaki. The US
has long been the greatest consumer and promoter of the powersports
industry.
US Highland has chosen the US market as its primary target and domicile
market as to take advantage of an increasing US-centric legislation, tax
incentive and purchasing sentiment.
Off-Road Seasonality
The off-road motorcycle market is a seasonal business, with the largest
sales occurring during spring. Sales during the winter months are
approximately 50% of peak sales.
The seasonality of the off-road business has traditionally resulted in
stocking orders for next year products in the months of August or
September; however, current economic conditions are likely to delay and
spread out these orders in 2009-2010.
On-Road Motorcycles Market
Comparisons between the dirt bike sales forecast and the total
motorcycle sales forecast illustrates that on-road or street motorcycles
represent a much larger market segment, by a ratio of 4.5:1.
Harley-Davidson continues to have the largest market share of this
market segment.
On-Road Seasonality
On-road seasonality is even more severe than off-road seasonality. In
the on-road market segment, summer month sales are the strongest, though
spring sales are within 20-30% of summer sales. Winter sales are as
much as 75% lower than summer sales.
22
Dual Sport Market
2009 data indicates a drop in this segment. US Highland motorcycles are
dual purpose ready.
Scooter Market
Industry data indicates that scooters are becoming a more important
segment each year. This was especially true when gas prices increased
in the United States. US Highland has an ongoing scooter development
project.
ATV Market
US Highland has developed an ATV (quad) product line, not yet ready for
release. The ATV market segment is a large market segment and
management believes that this will continue to be the case in 2010-11.
Motorcycle Dealer Analysis
JD Powers & Associates Surveys from 2008 and 2009 indicate that the
largest challenge that faced the dealers in 2009 was lack of financing
for inventory flooring and for consumer purchases, pointing to a
significant opportunity for those OEMs capable of either offering
financing or facilitating financing for dealers and/or consumers. This
situation is likely to remain the same or even worsen in 2010.
To match this broadly evidenced market need, US Highland may offer
through its dealer network special financing facilities designed to
enable qualifying customers the opportunity to ride US Highland. These
programs will be marketed and promoted with specific dealer training
focused on helping them create sales through their established customer
base.
Pricing Analysis
As indicated in the above section, purchasing is largely dependant on
consumer ability to acquire financing or credit. Off-road and Dual-
sport unit pricing range significantly from the low end Chinese import
disposable market to primary global brands. Off-brand bikes receive
little to no credit program support while the large brands offer factory
and dealer backed financing. Prices for vehicles range from $12,000 to
$75,000. The high end prices represents limited addition products.
Sales
US Highland targets premium, high performance motorcycles and ATVs.
Sales through established dealer networks are critical to any power
sports company success. US Highland has established relationships with
dealerships nationwide. A survey of dealer interests and constraints was
conducted. From this survey, it is clear that dealers are laboring with
three primary concerns:
1. Record Level Inventories
2. Flooring Costs
3. Reduced Credit Facilities
US Highland has established a sales model designed specifically to
directly answer the concerns of the current market and facilitate sales
to our top tier customers.
23
Business Development
--------------------
Relationships with Other OEMs
US Highland and its executives have long history with other powersports
OEMs. As a technology provider, US Highland is often perceived to be a
supplier rather than a competitor to other OEMs.
Acquisition Opportunities
-------------------------
Management believes there are currently a number of struggling OEMs have
been caught in the global economic downturn and have not been able to
react quickly enough to changing conditions. With the right mergers and
acquisitions strategy, one or more of these OEMs could add valuable
resources and substantial revenues and profits to US Highland.
Nonperforming assets from acquisitions could be sold off or
restructured.
Multi-National Locations
-------------------
Jonkoping, Sweden
Highland Group AB is located in Jonkoping, Sweden (pronounced JEN-sher-
ping). Sweden is well known for its premium powersports and automotive
companies, including Husaberg, Husqvarna, Volvo, Saab, and many others.
As a result, Sweden has many resources for these high technology and
manufacturing intensive businesses, including substantial government and
university support, and many world renowned designers and engineers.
Sweden has a number of significant disadvantages as a manufacturing
center. These disadvantages include:
- Inadequate as a central location for procurement of components and
subassemblies for manufacturing
- Inadequate as a central location for distribution to the world
markets, especially to the United States (increases shipping costs
and lead times)
- High labor costs
- Lengthy, mandatory national vacations
On the other hand, management is of the opinion that Sweden is an
excellent location for ongoing development and engineering activities:
- Sweden has several readily accessible government programs for
automotive and similar developers
- Sweden is home to a number of world renowned powersports designers
and racers
- Sweden is 'off the map' making it ideal to test new designs
without the watchful eyes of competitors
- Sweden has private capital market investment options that
facilitate and support new product development
24
Tulsa, Oklahoma
US Highland's professional race team has been managed near Tulsa,
Oklahoma for the past two years. US Highland has recently strategically
relocated the manufacturing and distribution portions of the business to
Tulsa, retaining product development and engineering activities in
Sweden.
Tulsa, Oklahoma is located relatively centrally in the United States.
Tulsa is a recognized major North American shipping hub with several
major interstate highways, railways, and an international airport. The
following are road-based shipping distances to other major shipping
hubs:
- Dallas: 257 miles
- Detroit: 947 miles
- Jacksonville: 1070 miles
- Los Angeles: 1437 miles
- Milwaukee: 771 miles
- New York City: 1348 miles
- Salt Lake City: 1206 miles
Tulsa was the original oil capital of the United States before Texas
gained this status. Tulsa remains a significant producer and refiner of
oil. Since the oil and gas industry requires so much equipment and
equipment repair, Tulsa has a large manufacturing base, including
manufacturing space, skilled labor, management and engineering talent,
manufacturing equipment suppliers and service centers, and large
subcontractor base for a wide variety of manufacturing services from
surface coatings and heat treatments to precision machining, casting,
and forging.
Subcontracting
--------------
US Highland uses subcontractors for tool and die work, casting, various
complex machining operations, plastic injection molding, and various
other capital intensive or low ROI operations which would therefore be
unwise to perform in house.
Vendors, suppliers, and subcontractors are pre-qualified by US
Highland's quality and purchasing personnel. Suppliers must meet
minimum capability, lead time, and quality requirements to be eligible
to participate in US Highland's vendor and subcontractor pool.
Final Assembly and Quality Assurance
------------------------------------
Final assembly and quality assurance are overseen by US Highland's
technicians. These technicians have many years of cumulative
experience. Many of these technicians have experience in the
professional race environment.
25
Logistics
---------
US Highland has in-house experts in logistics and supply chain
management. These experts monitor product flow from vendors and
subcontractors and to customers.
Facilities
The registrant's principle executive offices are located at 17424 South
Union, Mounds, OK 74047. The registrant's primary phone number is 918-
827-5254. Current manufacturing operations include 18,000 square feet
for general manufacturing, CNC machining, and final assembly, 5,000
square feet for welding, painting, and machining operations, and 10,000
square feet for administration. These premises are on a lease purchase
at $8,500 per month until December 31, 2010. The registrant intends to
purchase the facility at that time.
Reports to Security Holders
We are a fully reporting company under the requirements of the Exchange
Act, and to date we have filed the necessary quarterly and other reports
with the Securities and Exchange Commission. Although we are not
required to deliver our annual or quarterly reports to security holders,
we would be pleased to forward this information to security holders upon
receiving a written request to receive such information. The reports
and other information filed by us will be available for inspection and
copying at the public reference facilities of the Securities and
Exchange Commission located at 100 F Street, N.E., Washington, D.C.
20549.
Copies of such material may be obtained by mail from the Public
Reference Section of the Securities and Exchange Commission at 100 F
Street, N.E., Washington, D.C. 20549, at prescribed rates. Information
on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. In addition, the Commission maintains a
World Wide Website on the Internet at: http://www.sec.gov that contains
reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and
Exchange Commission.
DIVIDEND POLICY
We have never declared or paid any dividends. In addition, we
anticipate that we will not declare dividends at any time in the
foreseeable future.
Instead, we will retain any earnings for use in our business. This
policy will be reviewed by our board of directors from time to time in
light of, among other things, our earnings and financial position.
26
DETERMINATION OF OFFERING PRICE
The offering price of the common shares was arbitrarily determined by US
Highland without regard to the book value or market value, if any, of
our common shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Overview
-------
On January 25, 2010, Articles of Merger were filed with the state of
Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into
Harcom Productions, Inc. Pursuant to the Articles of Merger, the name
of the corporation was changed from Harcom Productions, Inc. to US
Highland, Inc.
Prior to the January 25, 2010, we offered professional consulting in
Music-on-Hold and messaging services as well some equipment sales and
consultation services for commercial clients.
Subsequent to the merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intends to pursue its business
plan. As a result, the registrant entered into an Asset Purchase
Agreement with Shane Harwell, an officer and director of the Registrant.
Pursuant to the Asset Purchase Agreement dated December 21, 2009, the
registrant sold all rights, title and interest to the purchased assets
to Mr. Harwell for the consideration of 950,000 common shares. The
950,000 common shares consisted of 468,750 common shares directly held
by Mr. Harwell, 468,750 common shares acquired by Mr. Harwell from Susan
Harwell, his wife and 12,500 common shares acquired by Mr. Harwell from
Charles Harwell, his father for nominal amounts.
Our principal sources of liquidity are existing cash, cash generated by
our operations, and our ability to borrow cash or obtain equity
investment when needed from a number of related parties.
Our principal uses of liquidity are funding growth opportunities and
paying the costs and expenses associated with our operations.
The registrant experienced significant growth in assets during the first
quarter of 2010, in a combination of components inventory, finished
goods inventory, and intellectual property.
In April 2010, the registrant received approximately $762,404 in a
private offering, substantially increasing the registrant's cash
reserves.
Effective May 31, 2010, Lemon Tree Financial Group, LLC, an entity
controlled by Chase Bales, an officer and director of the registrant,
entered into an agreement with the registrant. Pursuant to the
agreement, Lemon Tree tendered 2,000,000 common shares of the registrant
in exchange for the rights to three of the registrant's regional
dealerships valued at $200,000 each and the repayment of debt owed by
27
Lemon Tree to the registrant of $284,000. The 2,000,000 common shares
were returned to the treasury of the registrant and a portion of the
common shares will be reissued to the investors in this offering.
Results of Operations
---------------------
During the first quarter of 2010, the registrant used $1,736,342 of cash
equivalent, including various acquisitions of assets in partial cash and
partial stock transactions, in operating activities.
In the opinion of management, it is not useful to provide an analysis or
comparison of the results of prior years as the registrant has
materially changed its business plan and operations from prior years to
recreational powersports from operations unrelated to recreational
powersports, resulting in entirely new financial performance
characteristics. The registrant's first quarter revenues are much
better than management expectations, primarily derived from engineering
development and business development activities. The registrant will
continue to develop revenue from similar activities and plans on
supplementing engineering development and business development revenues
with revenues from manufacturing operations later this year.
Results of Operations for the three months ended March 31, 2010
Revenues:
During this quarter the registrant has total revenues of $655,497,
including approximately $256,000 in engineering development and $400,000
from business development activities.
Historically through its roots with the Swedish company the Highland
Group AB, the registrant has generated substantial revenues from
engineering development and business development activities. These
activities are likely to continue to remain a significant source of
revenues for the registrant, in addition to revenues generated from
manufacturing and sales of the registrant's motorcycles, quads, and
engines, planned for formal production startup later this year after the
production ramp up is complete.
Cost of Goods Sold:
Cost of goods sold for the period was $181,426. As the registrant
completes its production ramp activities and commences selling its
manufactured products, cost of goods sold are projected to increase
substantially, primarily proportionately to revenues from manufacturing
operations.
Net Income:
Net income for the period is $196,939, which is higher than expected for
the period. The registrant expects to generate most of its 2010
revenues near year end after production startup.
Operating Expenses:
Operating expenses for the period total $242,322. Operating expenses
are anticipated to increase at a much slower rate than cost of goods
sold proportional to revenues from manufacturing operations.
28
Comparison of Balance Sheet for March 31, 2010 and December 31, 2009 as
it pertains to Capital and Liquidity.
Cash and Equivalents:
At the end of the period, the registrant had $54,777 in cash;
however, immediately after the period ended the registrant received
$762,404 in cash from the sale of restricted stock in a private
offering. The registrant also has approximately $5.8 million in
inventory.
Accounts Receivable:
The registrant has total receivables of $370,561.
Total Current Liabilities:
The registrant has total current liabilities of $296,846.
Guarantees by officers and directors:
The credit of the officers and directors for guaranteeing any loan
necessary is extremely strong. The registrant has not established any
lines of credit with any banks. In the event a supplier or lender
requires additional credit to obtain small equipment or other business
supplies, our officers and directors are willing to extend their credit
to accomplish the purchase.
Off-balance sheet arrangements
-----------------------------
The registrant has no such arrangements.
Recent Pronouncements
--------------------
Management does not anticipate that the new accounting pronouncements
disclosed in the financial statements of the registrant will have a
material impact on the registrant.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
Our executive officers and directors and their business experience
follows:
Name and Age Position Term
Bengt Andersson, 65 Chairman January 2010 to present
Mats Malmberg, 41 President January 2010 to present
Managing Director
Steven Moel, 66 CEO January 2010 to present
Chase Bales, 51 COO / January 2010 to present
Director
Damian Riddoch, 37 CFO January 2010 to present
29
Resumes of Board of Directors and Officers
Mr. Bengt Andersson - Chairman
------------------------------
From 2002 to 2008, Mr. Bengt Andersson was the President and CEO of
Husqvarna AB, a multi-national publicly traded conglomerate producing
premium products including utility vehicles, tractors, chainsaws, lawn
mowers, pressure washers, and much more. During his tenure at
Husqvarna, Mr. Andersson oversaw the implementation of such venerable
motorcycles as the 610 four stroke and an international race-winning
platform. Mr. Andersson earned a bachelor's degree in meccanical
engineering in Sweden in 1965.
Mr. Mats Malmberg - Managing Director and President
---------------------------------------------------
Mr. Mats Malmberg is the original founder of Highland Group AB in Sweden
and the primary creator of the Highland brand in 1996. Mr. Malmberg is
a former pro racer. Mr. Malmberg is experienced in business
development, new product development, and operations. Mr. Malmberg
completed a three year degree program in business, large machinery and
forestry through Ostboskolan in 1990. He also completed a program in
business, general contract and project management through Ostboskolan in
1995.
Dr. Steven A. Moel - Chief Executive Officer
--------------------------------------------
Mr. Steven Moel, MD, JD, and experienced public company CEO, has
diversified experience in operations, business development, and mergers
and acquisitions in a variety of industries. Dr. Moel has experience in
managing growth from inception to mid cap. Dr. Moel brings to US
Highland experience and expertise in corporate management of emerging
growth public companies. He also offers public company experience in a
wide breadth of enterprise, and his direct management experiences
include daily operations, manufacturing, marketing, financial, mergers,
and acquisitions, technology development, and board of director
oversight.
Dr. Moel is in private practice as a transactional attorney and is a
member of the California and American Bar Associations and the American
Inns of Court. He also serves as counsel to many corporations. Dr.
Moel is currently
- senior business advisor of DPEC Partners, an entity engaged in
- Biotech
- Hotels
- International Real Estate Development
- Agriculture, and
- Winery;
- vice-president, business development and mergers and acquisitions
of Virgilian, LLC, an entity engaged in nutraceuticals and the
agricultural industries;
- senior business advisor and vice-president, finance, of viaMarket
Consumer Products, LLC, a manufacturer of consumer products); and
- advisory board member of Mahlia Collection, a jewelry designer
and manufacturer.
30
Dr. Moel received a bachelor of arts degree in psychology from the
University of Miami in 1965 and a doctor of medicine degree from West
Virginia University Medical School in 1970. Dr. Moel completed his
residency in ophthalmology at Louisiana State University from 1972-
1975. Dr. Moel received a juris doctor degree from Santa Barbara
College of Law in 2004.
Mr. Chase Bales ? Chief Operating Officer
-----------------------------------------
Mr. Bales is currently the Chief Operating Officer and a member of the
board of directors and the executive committee of US Highland, Inc. Mr.
Bales has been an officer and director of the company since May 2009.
Mr. Bales has been a director of Highland Group AB since July 2009.
From 1994 to present, Mr. Bales has been the president of Lemon Tree
Financial Group, a financial services entity. Over the past five years,
Mr. Bales has held various board or advisory positions in Mind Over
Matter, an engineering development company, Millennial Europe Greentech,
Wind and Solar Elements, LLC, Dynamic Solutions Research, Inc., and ATK,
a powersports OEM. Mr. Bales attended the University of Maryland from
1978-1979 taking extension services for studies abroad. Mr. Bales
attended business and communications courses at Clackamas College from
1980-1981. From 1981-1983, Mr. Bales attended classes in business and
computer science at the University of Montana. From 1991-1994, Mr.
Bales studied abroad.
Mr. Damian Riddoch ? Chief Financial Officer
--------------------------------------------
Mr. Riddoch currently holds positions at US Highland, Inc. and
Millennial Research Corporation. Mr. Riddoch has been CFO of US
Highland since December of 2009 and was Director of Operations
previously (since May of 2009). At Millennial Research Corporation Mr.
Riddoch has been a member of the executive committee and a director
since August of 2008 and additionally the CFO of that company since
January 2010. From 2006 to 2008, Mr. Riddoch worked for Revv Automotive
AG, a powersports product development company, as a director and member
of the executive team. Mr. Riddoch was an independent management
consultant from 2003 to 2005. Prior to 2002 (starting in 1999), Mr.
Riddoch was a multi-department manager (process simulation, estimating,
and maintenance) and engineering product manager for GSC Foundries, an
aerospace investment casting and CNC machining provider. Mr. Riddoch's
education includes a Master of Business Administration Degree (full time
program) from the University of Oxford (2003), a Master of Mechanical
Engineering Degree (2002), in addition to his undergraduate work, which
includes a Bachelor of Science Degree in Manufacturing Engineering from
Brigham Young University (1996) and an Associate of Science Degree in
Chemical Engineering from Ricks College (1991).
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
an officer, director, or greater-than-10% shareholder of the registrant
must file a Form 4 reporting the acquisition or disposition of
registrant's equity securities with the Securities and Exchange
31
Commission no later than the end of the second business day after the
day the transaction occurred unless certain exceptions apply.
Transactions not reported on Form 4 must be reported on Form 5 within 45
days after the end of the registrant's fiscal year. Such persons must
also file initial reports of ownership on Form 3 upon becoming an
officer, director, or greater-than-10% shareholder. To our knowledge,
based solely on a review of the copies of these reports furnished to it,
the officers, directors, and greater than 10% beneficial owners complied
with all applicable Section 16(a) filing requirements during 2009.
Code of Ethics Policy
We have adopted a code of ethics as of November 11, 2006 that applies to
our principal executive officer, principal financial officer and
principal accounting officer as well as our employees. Our standards
are in writing. Our complete Code of Ethics has been incorporated by
reference to Exhibit 14 of the Company's report on Form SB-2 which was
filed with the SEC on December 26, 2006. A copy of our code of ethics
is available to any person without charge, upon request. Requests can
be made by sending a self-addressed stamped envelope to the registrant.
The following is a summation of the key points of the Code of Ethics we
adopted:
- Honest and ethical conduct, including ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely, and understandable disclosure reports
and documents that a small business issuer files with, or submits to,
the Commission and in other public communications made by our company;
- Full compliance with applicable government laws, rules and
regulations;
- The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
- Accountability for adherence to the code.
Corporate Governance
There have been no changes in any state law or other procedures by which
security holders may recommend nominees to our board of directors. In
addition to having no nominating committee for this purpose, we
currently have no specific audit committee and no audit committee
financial expert. Based on the fact that our current business affairs
are simple, any such committees are excessive and beyond the scope of
our business and needs.
Audit Committee
We do not have an audit committee that is comprised of any independent
director. As a company with less than $1,000,000 in revenue we rely on
our chief financial officer for our audit committee financial expert as
defined in Item 407(d)(5) of Regulation S-K promulgated under the
Securities Act. Our Board of Directors acts as our audit committee. The
board has determined that the relationship of Damian Riddoch as both our
32
CFO and our audit committee financial expert is not detrimental to the
registrant. Mr. Riddoch has a complete understanding of GAAP and
financial statements; the ability to assess the general application of
such principles in connection with the accounting for estimates,
accruals and reserves in a fair and impartial manner; has experience
analyzing or evaluating financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable
to or exceed the breadth and complexity of issues that can reasonably be
expected to be raised by the small business issuer's financial
statements; an understanding of internal control over financial
reporting; and an understanding of audit committee functions. Mr.
Riddoch has gained this expertise through his formal education and
experience as our CFO and as CFO of another company. He has specific
experience coordinating the financials of the registrant with public
accountants with respect to the preparation, auditing or evaluation of
the company's financial statements.
Indemnification
The registrant shall indemnify to the fullest extent permitted by, and
in the manner permissible under the laws of the State of Oklahoma, any
person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he is or was a director or officer of the
registrant, or served any other enterprise as director, officer or
employee at the request of the registrant. The board of directors, in
its discretion, shall have the power on behalf of the registrant to
indemnify any person, other than a director or officer, made a party to
any action, suit or proceeding by reason of the fact that he/she is or
was an employee of the registrant.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) is asserted by
such director, officer, or controlling person in connection with any
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE REGISTRANT FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
33
Family Relationships
There are no family relationships between our officers and directors.
Involvement in Certain Legal Proceedings
None of our directors, executive officers and control persons has been
involved in any of the following events during the past five years:
- Any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time,
- Any conviction in a criminal proceeding or being subject to any
pending criminal proceeding (excluding traffic violations and other
minor offenses);
- Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his or her involvement in any type of business, securities or
banking activities,; or
- Being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to
have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated.
Executive Compensation
The following table sets forth information concerning the annual and
long-term compensation of the former chief executive officer, and the
most highly compensated employees and/or executive officers who served
at the end of the fiscal years December 31, 2008 and 2009, and whose
salary and bonus exceeded $100,000 for the fiscal years ended December
31, 2008 and 2009, for services rendered in all capacities to us.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Other Securities All
Name Annual Restricted Underlying LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus sation Awards SARs Outs sation
Position Year ($) ($) ($) ($) (#) ($) ($)
Shane Harwell 2009 - - - - - - -
CEO 2008 - - - - - - -
Susan Harwell 2009 - - - - - - -
CFO 2008 - - - - - - -
Director Compensation
The registrant does not compensate its directors for their services as
such. The registrant reimburses the directors for their reasonable out-
of pocket expenses for attending meetings of the board of directors.
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tabulates holdings of shares of the registrant by each
person who, subject to the above, holds of record or is known by
management to own beneficially more than 5.0% of the common shares and,
in addition, by all directors and officers of the registrant
individually and as a group. Each named beneficial owner has sole
voting and investment power with respect to the shares set forth
opposite his name.
The common shareholdings as of June 15, 2010 are shown below:
Number of
Name and Address Common Shares Percentage
---------------- ------------- ----------
Mats Malmberg 3,735,983 17.4%
Bjork Angen Hulu
Nassjo, Jonkoping
Sweden
Lemon Tree Financial Group, LLC(1) 624,375 2.91%
610 West Needles
Bixby, OK 74008
Chase Bales 2,114,341 9.9%
862 E. 171st Street
Glenpool, OK 74008
Boris Claesson 1,311,421 6.1%
Isberga Sateri
SMALANDSSTENAR 333 91
Sweden
Ingemar Brorsson 1,338,895 6.3%
Sallstorp 1
ULLARED 310 60
Sweden
Malfors Promote 1,529,364 7.1%
PL 16, Skarpoborg
Vaxholm SE 185 91
Sweden
Bengt Andersson 244,713 1.1%
Salita delle Ginestre
6900 Lugano
Switzerland
Steven Moel 50,000 .23%
167 Vista del mar Drive
Santa Barbara, CA 93109
Damian Riddoch 0 0.0%
6629 E. 116th Street South
Bixby, OK 74008
35
(1)Lemon Tree is an entity controlled by Chase Bales. As a result, Mr.
Bales would be deemed a beneficial owner of the 624,375 common shares
held by Lemon Tree.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From 2004-2009, the registrant's former general manager had advanced
funds to the registrant to purchase materials expensed as costs of goods
sold as well as to occasionally meet payroll obligations. These loans
were made through the use of the former general manager's personal
credit cards and personal loans. As such, the amount of interest
accrued is dictated by the interest rate agreed to through the formal
general manager's credit agreement. For the years ended December 31,
2009 and 2008, the net effect of unpaid advances were $164,070 and
$192,808 respectively.
On December 21, 2009, the registrant entered into a Transfer and
Assumption of Liabilities Agreement with Shane Harwell, a then officer
and director of the registrant. Pursuant to the Agreement, Harwell
agreed to assume all of the liabilities of the registrant at the time of
Closing. In consideration of the transfer and assumption of liabilities
to Harwell, the registrant issued a convertible debenture with the
principal amount of $225,000 with no interest. The convertible
debenture is convertible into common shares of the registrant at a
conversion price equal to 65% of the 28 day trading average prior to
conversion. The convertible debenture matures on December 21, 2010.
The registrant has the right, with seven (7) business days advance
written notice, to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date.
In contemplation of a merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intended to pursue its current
business plan. As a result, the registrant entered into an Asset
Purchase Agreement with Shane Harwell, an officer and director of the
Registrant. Pursuant to the Asset Purchase Agreement dated December 21,
2009, the registrant sold all rights, title and interest to the
Purchased Assets to Mr. Harwell for the consideration of 950,000 common
shares. The 950,000 common shares consisted of 468,750 common shares
directly held by Mr. Harwell, 468,750 common shares acquired by Mr.
Harwell from Susan Harwell, his wife and 12,500 common shares acquired
by Mr. Harwell from Charles Harwell, his father for nominal amounts.
Effective May 31, 2010, Lemon Tree Financial Group, LLC, an entity
controlled by Chase Bales, an officer and director of the registrant,
entered into an agreement with the registrant. Pursuant to the
agreement, Lemon Tree tendered 2,000,000 common shares of the registrant
in exchange for the rights to three of the registrant's regional
dealerships valued at $200,000 each and the repayment of debt owed by
Lemon Tree to the registrant of $284,000. The 2,000,000 common shares
were returned to the treasury of the registrant and a portion of the
common shares will be reissued to the investors in this offering.
36
On May 31, 2010, Lemon Tree gifted 250,000 common shares to Jack P.
Larrabee, II and 250,000 common shares to KTM Capital, LLC, an entity
controlled by James Holland, a non-affiliate.
Director Independence
None of the registrant's board of directors are independent as such term
is defined by a national securities exchange or an inter-dealer quotation
system.
DESCRIPTION OF CAPITAL STOCK
The following statements constitute brief summaries of US Highland
certificate of incorporation and bylaws, as amended.
Common Shares. US Highland articles of incorporation authorize it to
issue up to 100,000,000 common shares, $0.01 par value per common share.
On January 21, 2010, US Highland approved a 7 to 1 forward split on the
common shares.
Liquidation Rights. Upon liquidation or dissolution, each outstanding
common share will be entitled to share equally in the assets of US
Highland legally available for distribution to shareholders after the
payment of all debts and other liabilities.
Dividend Rights. There are no limitations or restrictions upon the
rights of the board of directors to declare dividends out of any funds
legally available therefore. US Highland has not paid dividends to date
and it is not anticipated that any dividends will be paid in the
foreseeable future. The board of directors initially may follow a
policy of retaining earnings, if any, to finance the future growth of US
Highland. Accordingly, future dividends, if any, will depend upon,
among other considerations, US Highland need for working capital and its
financial conditions at the time.
Voting Rights. Holders of common shares of US Highland are entitled to
voting rights of one hundred percent. Holders may cast one vote for
each share held at all shareholders meetings for all purposes.
Other Rights. Common shares are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or
purchase additional common shares. Common Shares do not have cumulative
voting features. Our bylaws allow action to be taken by written consent
rather than at a meeting of stockholders with the consent of the holders
of a majority of shares entitled to vote.
Transfer Agent. Columbia Stock Transfer Company acts as US Highland
transfer agent.
37
SHARES ELIGIBLE FOR FUTURE SALE
Upon the date of this prospectus, there are 21,462,500 shares of our
common stock outstanding of which 5,019,000 common shares may be freely
traded without restriction.
The common shares being sold in this offering will be reissued from
outstanding treasury common shares. Upon the effectiveness of this
registration statement up to 1,880,087 common shares may be issued and
will be eligible for immediate resale in the public market. The
remaining common shares will be restricted within the meaning of Rule
144 under the Securities Act, and are subject to the resale provisions
of Rule 144.
At the present time, resales or distributions of such shares are
provided for by the provisions of Rule 144. That rule is a so-called
"safe harbor" rule which, if complied with, should eliminate any
questions as to whether or not a person selling restricted shares has
acted as an underwriter.
At the present time, resales or distributions of such shares are
provided for by the provisions of Rule 144. That rule is a so-called
"safe harbor" rule which, if complied with, should eliminate any
questions as to whether or not a person selling restricted shares has
acted as an underwriter.
Rule 144(d)(1) states that if the issuer of the securities is, and has
been for a period of at least 90 days immediately before the sale,
subject to the reporting requirements of section 13 or 15(d) of the
Exchange Act, a minimum of six months must elapse between the later of
the date of the acquisition of the securities from the issuer, or from
an affiliate of the issuer, and any resale of such securities.
Sales under Rule 144 are also subject to notice and manner of sale
requirements and to the availability of current public information and
must be made in unsolicited brokers' transactions or to a market maker.
A person who is not an affiliate of US Highland under the Securities Act
during the three months preceding a sale and who has beneficially owned
such shares for at least six months is entitled to sell the shares under
Rule 144 without regard to the volume, notice, information and manner of
sale provisions. Affiliates must comply with the restrictions and
requirements of Rule 144 when transferring restricted shares even after
the six month holding period has expired and must comply with the
restrictions and requirements of Rule 144 in order to sell unrestricted
shares.
No predictions can be made of the effect, if any, that market sales of
shares of common stock or the availability of such shares for sale will
have on the market price prevailing from time to time. Nevertheless,
sales of significant amounts of our common stock could adversely affect
the prevailing market price of the common stock, as well as impair our
ability to raise capital through the issuance of additional equity
securities.
38
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the small business issuer as provided in the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Item 5(a)
a) Market Information. On March 17, 2008, our common stock was listed
for the first time on the OTC Bulletin Board under the symbol HRCM.
On March 31, 2010, due to our name change, our symbol was changed to
UHLN.
The following table sets forth the range of high and low bid quotations
for the registrant's common stock. The quotations represent inter-
dealer prices without retail markup, markdown or commission, and may not
necessarily represent actual transactions.
Quarter Ended High Bid Low Bid
3/31/08 none none
6/30/08 .55 .55
9/30/08 .25 .18
12/31/08 .18 .18
3/31/09 .05 .02
6/30/09 .80 .02
9/30/09 .79 .79
12/31/09 .79 .79
3/31/10 4.00 .79
39
b) Holders. At June 15, 2010, there were approximately 60
shareholders of the registrant.
c) Dividends. Holders of the registrant's common stock are
entitled to receive such dividends as may be declared by its board
of directors. No dividends on the registrant's common stock have
ever been paid, and the registrant does not anticipate that
dividends will be paid on its common stock in the foreseeable
future.
d) Securities authorized for issuance under equity compensation
plans. No securities are authorized for issuance by the
registrant under equity compensation plans.
e) Performance graph. Not applicable.
f) Sale of unregistered securities. The registrant sold 609,913
common shares during April and May of 2010 in which the registrant
received approximately $774,915 in paid in capital from the sale
of common restricted stock at approximately $1.25 per share in a
private offering.
Name Amount Paid Shares Date
---- ----------- ------ ----
Richard Goglia $ 12,500 10,000 4/12/10
Baurus Co. Limited(1) $106,250 85,000 4/10/10
Ingemar Brorsson $208,962.24 167,170 4/16/10
Iron Invest AB(2) $139,000 111,200 4/16/10
Marcus Bjornsson $ 13,835 11,068 4/19/10
Mikael Svenfelt $ 18,039 14,431 4/15/10
Olof Svenfelt $139,000 111,200 4/29/10
Richard Goglia $ 12,500 10,000 4/13/10
Ullared Netto AB(3) $ 69,526.67 55,622 4/16/10
WP Intressenter(4) $ 41,493.07 33,194 4/26/10
Beslag & Metall(5) $ 13,809 11,047 4/14/10
(1) An unaffiliated entity controlled by Bjorn Ohlsen. The entity is
neither a registered broker-dealer nor an affiliate of registered
broker-dealers.
(2) An affiliated entity controlled by Mats Malmberg, an officer and a
director of the registrant. The entity is neither registered broker-
dealer nor an affiliate of registered broker-dealers.
(3) An unaffiliated entity controlled by Frank Gunnarsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(4) An unaffiliated entity controlled by Christer Wagenius. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(5) An unaffiliated entity controlled by Marcus Bjornsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
40
On May 31, 2010, Lemon Tree, an entity controlled by Chase Bales, an
officer and director of the registrant gifted 250,000 common shares to
Jack P. Larrabee, II and 250,000 common shares to KTM Capital, LLC, an
entity controlled by James Holland, a non-affiliate.
Item 5(b) Use of Proceeds. Not applicable.
Item 5(c) Purchases of Equity Securities by the issuer and
affiliated purchasers. None.
EXPERTS
The financial statements of US Highland appearing in this registration
statement have been audited by Hood Sutton Robinson & Freeman CPAs,
P.C., independent registered public accounting firms and are included in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings the outcome of which, in the
opinion of our management, would have a material adverse effect on our
business, financial condition, or results of operation.
LEGAL MATTERS
The validity of the common shares being offered hereby will be passed
upon by Jody M. Walker, Attorney At Law, Centennial, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
At your request, we will provide you, without charge, a copy of any
document filed as exhibits in this prospectus. If you want more
information, write or call us at:
US Highland, Inc.
17424 South Union Ave.
Mounds, OK 74047
918-827-5254
Attention: Damian Riddoch, Chief Financial Officer
Our fiscal year ends on December 31st. Upon completion of this
offering, we will become a reporting company and file annual, quarterly
and current reports with the SEC. You may read and copy any reports,
statements, or other information we file at the SEC's public reference
room at 100 F Street, Washington D.C. 20549. You can request copies of
these documents, upon payment of a duplicating fee by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our SEC filings are also
available to the public on the SEC Internet site at http:\\www.sec.gov.
41
US Highland, Inc.
formerly Harcom Productions, Inc.
Index to the Financial Statements
Balance Sheets as of March 31, 2010 (unaudited) and
December 31, 2009 (audited) 42
Unaudited Statements of Operations for the three months
Ended March 31, 2010 and March 31, 2009 44
Unaudited Statements of Cash Flows for the three months
Ended March 31, 2010 and March 31, 2009 45
Notes to Unaudited Financial Statements for the three months
Ended March 31, 2010 46
Report of Independent Registered Public Accounting Firm 54
Financial Statements of Harcom Productions, Inc.:
Balance Sheets as of December 31, 2009 and 2008 55
Statements of Operations For the Years
Ended December 31, 2009 and 2008 56
Statements of Stockholders' Equity (Deficit) For
the Years Ended December 31, 2009 and 2008 57
Statements of Cash Flows For the Years Ended
December 31, 2009 and 2008 58
Notes to Financial Statements 59
42
PART I
Item I - FINANCIAL STATEMENTS
US Highland, Inc.
Balance Sheets
March 31, 2010 and December 31, 2009
(Unaudited) (Audited)
3/31/10 12/31/09
--------- --------
Assets
Current Assets:
Cash $ 54,777 $ 392,766
Accounts Receivable 370,561 116,043
Inventory 5,842,381 4,254,582
----------- -----------
6,267,719 4,763,391
----------- -----------
Property and Equipment:
Vehicle 20,750 20,750
Furniture and Fixtures 66,483 43,297
Tooling 316,971 300,000
Production Equipment 4,806 -
Leasehold Improvements 42,299 -
Accumulated Depreciation (5,168) (5,168)
----------- -----------
446,141 358,879
----------- -----------
Other Assets:
Intellectual Property 13,000,000 -
Long-term Notes Receivable 230,000 -
Goodwill 164,820 143,820
Deposits 2,127 1,102
----------- -----------
13,396,947 144,922
----------- -----------
Total Assets $20,110,807 $ 5,267,192
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable 204,260 264,097
Current Portion of Long-Term Debt 8,400 8,400
Accrued Liabilities 84,186 2,754
----------- -----------
296,846 275,251
----------- -----------
43
Long-term Liabilities:
Notes Payable 32,654 34,707
Current Portion of Long-Term Debt (8,400) (8,400)
----------- -----------
24,254 26,307
Deferred Income Taxes 8,386 8,386
----------- -----------
32,640 34,693
Stockholders' Equity:
Common Stock, 100 million shares
authorized, par $0.01, 21,462,500
shares issued and outstanding 214,625 100,000
Paid in Capital 19,369,757 4,810,149
Retained Earnings 196,939 47,099
----------- -----------
Total Stockholders' Equity 19,781,321 4,957,248
----------- -----------
Total Liabilities and Stockholders'
Equity $20,110,807 $ 5,267,192
=========== ===========
The accompanying notes are an integral part
of the interim financial statements
44
US Highland, Inc.
Statements of Operations
For the Three Months Ended March 31, 2010 and March 31, 2009
(Unaudited) (Unaudited)
3/31/10 3/31/09
--------- ---------
Revenue:
Sales $ 655,497 $ 82,756
Cost of Goods Sold (181,426) (34,688)
--------- ---------
Gross Profit 474,071 48,068
--------- ---------
Operating Expenses:
General and Administrative 150,775 73,208
Racing - -
Research and Development - -
Selling 91,547 -
Depreciation - -
--------- ---------
Total Operating Expenses 242,322 73,208
--------- ---------
Operating Income 231,749 (25,140)
Other Income (Expense):
Interest Income 103 -
Interest Expense (580) (3,217)
--------- ---------
(477) (3,217)
--------- ---------
Income before Provision for
Income Taxes 231,272 (28,357)
Provision for Income Taxes 81,432 -
--------- ---------
Net Income 149,840 (28,357)
Retained Earnings, Beginning of Year 47,099 -
--------- ---------
Retained Earnings, End of Year $ 196,939 $ (28,357)
========= =========
Earnings Per Share, Average $ 0.01 $ (0.02)
========= =========
The accompanying notes are an integral part
of the interim financial statements
45
US Highland, Inc.
Statements of Cash Flows
For the Three Months Ended March 31, 2010 and March 31, 2009
(Unaudited) (Unaudited)
3/31/10 3/31/09
--------- ---------
Operating Activities
Net Income $ 229,802 $ (28,357)
Adjustments to reconcile Net Income
(Loss) to net cash
Accounts Receivables (253,918) 5,215
Amortization - 4,137
Leasehold Improvements (42,299) -
Office Equipment (1,686) -
Inventory Asset (1,187,799) -
RSGA Inventory (400,000) -
Equipment & Tooling (16,928) -
Rental & Utility Deposits (1,025) -
Accounts Payable (52,018) (2,419)
Escrow Account (8,500) -
Payroll Liabilities 81 -
Prepaid Expenses - (802)
Security Bank - Principal (2,053) -
----------- -----------
Net Cash Used Operating Activities (1,736,342) (22,226)
----------- -----------
Investing Activities - -
----------- -----------
Production Equipment (4,806) -
Furniture and Equipment (21,500) -
Long Term Notes: Highland Group AB (230,000) -
Goodwill (HARCOM) (21,000) -
Intellectual Property (13,000,000) -
----------- -----------
Net Cash Used by Investing Activities (13,277,306) -
Financing Activities
Proceeds from Related Party Loans - 22,164
Proceeds from Issuance of Common Stock 14,675,475 -
----------- -----------
Net cash provided by Financing Activities 14,675,475 22,164
----------- -----------
Net cash increase for period (338,173) (62)
Cash at beginning of period 392,951 8,337
----------- -----------
Cash at end of period $ 54,777 $ 8,275
=========== ===========
The accompanying notes are an integral part
of the interim financial statements
46
US Highland, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 2010
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
US Highland, Inc. was originally formed as a Limited Liability Company
on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to
the laws of the State of Oklahoma. On November 9, 2006, Powerhouse
Productions, L.L.C. filed Articles of Conversion changing the entity
from a limited liability company to a corporation under the name Harcom
Productions, Inc. On January 25, 2010, Articles of Merger were filed
with the 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 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.
47
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
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
48
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.
Intangible assets include intellectual property rights which were valued
at the date of acquisition by management and amortized over 10 years.
Management assesses the recoverability of equipment and intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from its future
undiscounted cash flows. If it is determined that an impairment has
occurred, an impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its estimated fair value.
New Accounting Standards
Recent Accounting Pronouncements
In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on
estimating fair value when market activity has decreased and on
identifying transactions that are not orderly. Additionally, entities
are required to disclose in interim and annual periods the inputs and
valuation techniques used to measure fair value. This FSP is effective
for interim and annual periods ending after June 15, 2009. The Company
does not expect the adoption of FSP FAS 157-4 will have a material
impact on its financial condition or results of operation.
49
In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not
Active," ("FSP FAS 157-3"), which clarifies application of SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements have not been
issued. The adoption of FSP FAS 157-3 had no impact on the Company's
results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8,
"Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities." This
disclosure-only FSP improves the transparency of transfers of financial
assets and an enterprise's involvement with variable interest entities,
including qualifying special-purpose entities. This FSP is effective
for the first reporting period (interim or annual) ending after December
15, 2008, with earlier application encouraged. The Company adopted this
FSP effective January 1, 2009. The adoption of the FSP had no impact on
the Company's results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employers'
Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-
1"). FSP FAS 132(R)-1 requires additional fair value disclosures about
employers' pension and postretirement benefit plan assets consistent
with guidance contained in SFAS 157. Specifically, employers will be
required to disclose information about how investment allocation
decisions are made, the fair value of each major category of plan assets
and information about the inputs and valuation techniques used to
develop the fair value measurements of plan assets. This FSP is
effective for fiscal years ending after December 15, 2009. The Company
does not expect the adoption of FSP FAS 132(R)-1 will have a material
impact on its financial condition or results of operation.
In September 2008, the FASB issued exposure drafts that eliminate
qualifying special purpose entities from the guidance of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and FASB Interpretation 46 (revised
December 2003), "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51," as well as other modifications. While
the proposed revised pronouncements have not been finalized and the
proposals are subject to further public comment, the Company anticipates
the changes will not have a significant impact on the Company's
financial statements. The changes would be effective March 1, 2010, on
a prospective basis.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP EITF
03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and
therefore need to be included in the computation of earnings per share
under the two-class method as described in FASB Statement of Financial
Accounting Standards No. 128, "Earnings per Share." FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning on
or after December 15, 2008 and earlier adoption is prohibited. We are
50
not required to adopt FSP EITF 03-6-1; neither do we believe that FSP
EITF 03-6-1 would have material effect on our consolidated financial
position and results of operations if adopted.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-
and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies
how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement of premium revenue and claims
liabilities. This statement also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163 is effective for
fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 162, "The Hierarchy of Generally Accepted Accounting
Principles". SFAS No. 162 sets forth the level of authority to a given
accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative
category will prevail. SFAS No. 162 will become effective 60 days after
the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA
Professional Standards. SFAS No. 162 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133. This standard
requires companies to provide enhanced disclosures about (a) how and why
an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial
performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has
not yet adopted the provisions of SFAS No. 161, but does not expect it
to have a material impact on its consolidated financial position,
results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107
(SAB 107), in developing an estimate of expected term of "plain vanilla"
share options in accordance with SFAS No. 123 (R), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined
estimates of expected term. At the time SAB 107 was issued, the staff
believed that more detailed external information about employee exercise
behavior (e.g., employee exercise patterns by industry and/or other
categories of companies) would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it
51
would not expect a company to use the simplified method for share option
grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available
by December 31, 2007. Accordingly, the staff will continue to accept,
under certain circumstances, the use of the simplified method beyond
December 31, 2007. The Company currently uses the simplified method for
"plain vanilla" share options and warrants, and will assess the impact
of SAB 110 for fiscal year 2009. It is not believed that this will have
an impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements-an amendment of ARB No.
51. This statement amends ARB 51 to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Before this statement was issued, limited guidance existed
for reporting non-controlling interests. As a result, considerable
diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as
liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption
is prohibited. The effective date of this statement is the same as that
of the related Statement 141 (revised 2007). The Company will adopt this
Statement beginning March 1, 2009. It is not believed that this will
have an impact on the Company's consolidated financial position, results
of operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in
Statement 141. This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree; (b) recognizes and
measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement applies
prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. An entity may not apply it before that
date. The effective date of this statement is the same as that of the
related FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The Company will adopt this statement beginning
March 1, 2009. It is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
52
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Liabilities-Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. This
option is available to all entities. Most of the provisions in FAS 159
are elective; however, an amendment to FAS 115 Accounting for Certain
Investments in Debt and Equity Securities applies to all entities with
available for sale or trading securities. Some requirements apply
differently to entities that do not report net income. SFAS No. 159 is
effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes
that choice in the first 120 days of that fiscal year and also elects to
apply the provisions of SFAS No. 157 Fair Value Measurements. The
Company will adopt SFAS No. 159 beginning March 1, 2008 and is currently
evaluating the potential impact the adoption of this pronouncement will
have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement
does not require any new fair value measurements. However, for some
entities, the application of this statement will change current
practice. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. Earlier application is encouraged, provided
that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period
within that fiscal year. The Company will adopt this statement March 1,
2008, and it is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
Reclassification
Certain reclassifications may have been made in prior years' financial
statements to conform to classifications used in the current year.
Note 2 - Intangible Assets
The cost to acquire intangible assets in 2010 has been allocated to the
assets acquired according to the estimated fair values and amortized
over a 10 year life using the straight line method. The Company has
adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby the
Company periodically tests its intangible assets for impairment. On an
annual basis, and when there is reason to suspect that their values have
been diminished or impaired, these assets are tested for impairment, and
write-downs will be included in results from operations.
53
The identifiable intangible assets acquired and their carrying values at
March 31, 2010:
2010
----
Intellectual Property Acquired from
Highland Group AB $13,000,000
Less: Accumulated Amortization (0)
-----------
Net Intangible Asset $13,000,000
Note 3 -Long-term Debt
The Company does not have any long-term debt.
Note 4 - Other Commitments and Contingencies
Lease Agreement
Current manufacturing operations include 18,000 square feet for general
manufacturing, CNC and manual machining, and final assembly, 5,000
square feet for welding, painting, and fabrication operations, and
10,000 square feet for administration (lease purchase at $8,500 per
month).
Note 5 - Significant Cash and/or Stock Based Acquisitions of Assets
In three separate transactions involving cash and/or stock, the Company
acquired $400,000 in finished goods inventory from RSGA International,
Inc., $1 million in components and finished goods inventory from ATK of
Oklahoma, Inc., and $13 million in intellectual property from the
Highland Group AB (the Swedish company which caused US Highland, Inc. to
be formed and from which US Highland, Inc. acquired most of its assets,
its brand name, some of the members of the US Highland management team,
and the US Highland product line).
Note 6 - Subsequent Event
The Company completed a series of stock purchase agreements during April
of 2010 in which the Company received approximately $762,404 in paid in
capital from the sale of common restricted stock at $1.25 per share in a
private offering with a commitment to register the common restricted
shares in a near term registration statement and the option to
repurchase the shares within 60 days at $2.50 per share.
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Harcom Productions, Inc.
Tulsa, Oklahoma
To the Board of Directors:
We have audited the accompanying consolidated balance sheets of Harcom
Productions, Inc. for the year ended December 31, 2009 and the related
statements of operations, shareholders' equity, and cash flows for the
year then ended These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. The
financial statements for the year ended December 31, 2008 were audited
by other auditors and their report dated, March 30, 2009 expressed a
going concern issue.
We conducted our audit in accordance with auditing standards of the
Public Company Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Harcom
Productions, Inc. as of December 31, 2009, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency, which raises substantial
doubt about its ability to continue as a going concern. Management's
plans regarding those matters also are described in Note 2. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Hood Sutton Robinson & Freeman CPAs, P.C.
Hood Sutton Robinson & Freeman CPAs, P.C.
Certified Public Accountants
March 31 2010
Tulsa, Oklahoma
55
Harcom Productions, Inc.
Balance Sheets
December 31, 2009 and 2008
ASSETS 2009 2008
---- ----
Current Assets
Cash & Cash Equivalents $ 32,696 $ 8,337
Accounts Receivable, net 41,292 59,243
Other Current Assets - 2,733
--------- ---------
Total Current Assets 73,988 70,313
--------- ---------
Other Assets
Intangible Assets - Less Amortization 72,235 88,783
Deposits 1,500 1,500
--------- ---------
Total Other Assets 73,735 90,283
--------- ---------
TOTAL ASSETS $ 147,723 $ 160,598
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Liabilities $ 17,263 $ 25,689
Due to related parties 164,070 192,808
Note payable (Current) 9,027 8,629
--------- ---------
Total Current Liabilities 190,540 227,126
--------- ---------
Long Term Liabilities, net of current
portion 131,660 140,867
--------- ---------
Total Liabilities 322,200 367,993
--------- ---------
Stockholders' Deficit
Common Stock, Shares Authorized
100,000,000, Par Value $.01 Issued
and Outstanding 1,637,500 shares 16,375 16,375
Additional Paid-In Capital 242,887 99,067
Accumulated Deficit (433,739) (322,839)
--------- ---------
Total Deficit (174,477) (207,397)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 147,723 $ 160,596
========= =========
The accompanying notes are an integral part of these statements
56
Harcom Productions, Inc.
Statements of Operations
For the Years Ended December 31, 2009 and 2008
2009 2008
---- ----
REVENUES
Shipped Products $ 230,999 $ 378,241
Refund/Discounts of Services (879) (1,182)
--------- ---------
Total Revenue 230,120 377,059
--------- ---------
COST OF GOODS SOLD
Commission 22,781 45,971
Materials 49,655 72,550
Amortization Expense 16,548 16,548
--------- ---------
Total Cost of Goods Sold 88,984 135,069
--------- ---------
Gross Profit 141,136 241,990
--------- ---------
OPERATING EXPENSES
General & Administrative 70,241 77,401
Medical Insurance 834 1,655
Employee Compensation 167,889 277,864
--------- ---------
Total Operating Expenses 238,964 356,920
--------- ---------
OTHER EXPENSE
Interest Expense 13,072 19,253
OTHER REVENUE
Consulting Fees - 25,500
--------- ---------
NET LOSS BEFORE INCOME TAXES (110,900) (108,683)
Provision for Income Taxes - -
NET INCOME(LOSS) $(110,900) $(108,683)
========= =========
Earnings (Loss) per common share
basic and full diluted $ (0.07) $ (0.07)
========= =========
Weighted average number of
common shares outstanding 1,637,500 1,637,500
The accompanying notes are an integral part of these statements
57
Harcom Productions, Inc.
Statement of Stockholders' Equity
For the Years Ended December 31, 2009 and 2008
Common Stock
------------ Additional Accumulated
Shares Amounts Paid-in Capital Deficit Total
----------------- ---------------- ------- -----
Balance at December 31, 2007 1,637,000 $16,375 $ 99,067 $(214,156) $ (98,714)
Net loss 2008 - - - (108,683) (108,683)
--------------------------------------------------------
Balance at December 31, 2008 1,637,500 $16,375 $ 99,067 $(322,839) $(207,397)
Capital Contribution 143,820 143,820
Net loss for the year ended
December 31, 2009 (110,900) (174,477)
--------------------------------------------------------
Balance at December 31, 2009 1,637,500 $16,375 $242,887 $(433,739) $(174,477)
--------------------------------------------------------
The accompanying notes are an integral part of these statements
58
Harcom Productions, Inc.
Statements of Cash Flows
For the Years Ended December 31, 2009 and 2008
2009 2008
---- ----
Operating Activities
Net Income(Loss) $(110,900) $(108,683)
Adjustments to reconcile Net Income
(Loss) To net cash used in operating
activities:
Amortization 16,548 16,548
Accounts receivable 17,951 (3,215)
Accounts Payable and Accrued Liabilities (8,426) (16,246)
Prepaid expenses 2,733 2,263
--------- ---------
Net Cash (Used In) Provided By Operating
Activities 28,806 (650)
--------- ---------
Investing Activities - -
Financing Activities:
Due to Related party (36,497) 121,501
Note Payable (Current (9,207) (8,629)
Capital Contribution 143,820 -
--------- ---------
Net Cash Provided By Financing Activities 98,116 112,872
--------- ---------
Net Change in Cash 16,022 3,539
Cash, Beginning of Period 8,337 4,798
--------- ---------
Cash, End of Period $ 24,359 $ 8,337
========= =========
Supplemental Information
Interest Paid $ 13,072 $ 19,253
========= =========
59
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
-------------------------------------
Harcom Productions, Inc. was incorporated in 1999 in the state of
Oklahoma. The Company's headquarters are located in Tulsa, Oklahoma. In
early 1999, the Company executed a Purchase Agreement to acquire the
operating and intangible assets of an existing production company from a
related party. As such, the Company has since operated as a production
company specializing in on hold messaging for all types of companies.
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. As of
December 31, 2009, the Company's allowance for doubtful accounts totaled
$3,960 based upon management's analysis of possible bad debts. This
analysis was based on a two year study of bad debt as it relates to
Receivables.
Revenue Recognition
-------------------
Costs of Goods Sold costs include all direct equipment, amortization,
material, shipping costs and those indirect costs related to contract
performance, such as indirect labor. Selling, general and administrative
costs are charged to expenses as incurred. Changes in contract
60
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
performance, contract conditions, and estimated profitability that may
result in revisions to costs and income are recognized in the period in
which the revisions are determined.
For revenue from product sales, the Company recognizes revenue in
accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition," which superseded SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred; (3) the selling price
is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the
products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period
the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such
time that the Company and the customer jointly determine that the
product has been delivered or no refund will be required. SAB No. 104
incorporates Emerging Issues Task Force ("EITF") No. 00-21, "Multiple-
Deliverable Revenue Arrangements." EITF No. 00-21 addresses accounting
for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect of
implementing EITF No. 00-21 on the Company's financial position and
results of operations was not significant. This issue addresses
determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the
separate units of accounting. EITF No. 00-21 became effective for
revenue arrangements entered into in periods beginning after September
15, 2003.
For those contracts which contain multiple deliverables, management must
first determine whether each service, or deliverable, meets the
separation criteria of EITF No. 00-21. In general, a deliverable (or a
group of deliverables) meets the separation criteria if the deliverable
has standalone value to the customer and if there is objective and
reliable evidence of the fair value of the remaining deliverables in the
arrangement. Each deliverable that meets the separation criteria is
considered a "separate unit of accounting." Management allocates the
total arrangement consideration to each separate unit of accounting
based on the relative fair value of each separate unit of accounting.
The amount of arrangement consideration that is allocated to a unit of
accounting that has already been delivered is limited to the amount that
is not contingent upon the delivery of another separate unit of
accounting. After the arrangement consideration has been allocated to
each separate unit of accounting, management applies the appropriate
61
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
revenue recognition method for each separate unit of accounting as
described previously based on the nature of the arrangement. All
deliverables that do not meet the separation criteria of EITF No. 00-21
are combined into one unit of accounting, and the appropriate revenue
recognition method is applied.
Basis of Presentation
---------------------
In the opinion of management, the accompanying balance sheets and
related interim statements of income, cash flows, and stockholders'
equity include all adjustments, consisting only of normal recurring
items, necessary for their fair 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.
Intangible assets include intellectual property rights which were valued
at the date of acquisition by management and amortized over 15 years.
Management assesses the recoverability of equipment and intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from its future
62
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
undiscounted cash flows. If it is determined that an impairment has
occurred, an impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its estimated fair value.
New Accounting Standards
Recent Accounting Pronouncements
---------------------------------
In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on
estimating fair value when market activity has decreased and on
identifying transactions that are not orderly. Additionally, entities
are required to disclose in interim and annual periods the inputs and
valuation techniques used to measure fair value. This FSP is effective
for interim and annual periods ending after June 15, 2009. The Company
does not expect the adoption of FSP FAS 157-4 will have a material
impact on its financial condition or results of operation.
In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not
Active," ("FSP FAS 157-3"), which clarifies application of SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements have not been
issued. The adoption of FSP FAS 157-3 had no impact on the Company's
results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8,
"Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities." This
disclosure-only FSP improves the transparency of transfers of financial
assets and an enterprise's involvement with variable interest entities,
including qualifying special-purpose entities. 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
63
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
effective for fiscal years ending after December 15, 2009. The Company
does not expect the adoption of FSP FAS 132(R)-1 will have a material
impact on its financial condition or results of operation.
In September 2008, the FASB issued exposure drafts that eliminate
qualifying special purpose entities from the guidance of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and FASB Interpretation 46 (revised
December 2003), "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51," as well as other modifications. While
the proposed revised pronouncements have not been finalized and the
proposals are subject to further public comment, the Company anticipates
the changes will not have a significant impact on the Company's
financial statements. The changes would be effective March 1, 2010, on
a prospective basis.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP EITF
03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and
therefore need to be 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
64
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA
Professional Standards. SFAS No. 162 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133. This standard
requires companies to provide enhanced disclosures about (a) how and why
an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial
performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has
not yet adopted the provisions of SFAS No. 161, but does not expect it
to have a material impact on its consolidated financial position,
results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107
(SAB 107), in developing an estimate of expected term of "plain vanilla"
share options in accordance with SFAS No. 123 (R), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined
estimates of expected term. At the time SAB 107 was issued, the staff
believed that more detailed external information about employee exercise
behavior (e.g., employee exercise patterns by industry and/or other
categories of companies) would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it would not
expect a company to use the simplified method for share option grants
after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available
by December 31, 2007. Accordingly, the staff will continue to accept,
under certain circumstances, the use of the simplified method beyond
December 31, 2007. The Company currently uses the simplified method for
"plain vanilla" share options and warrants, and will assess the impact
of SAB 110 for fiscal year 2009. It is not believed that this will have
an impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements-an amendment of ARB No. 51. This
statement amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling
65
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Before this statement was issued, limited guidance existed
for reporting noncontrolling interests. As a result, considerable
diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as
liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption
is prohibited. The effective date of this statement is the same as that
of the related Statement 141 (revised 2007). The Company will adopt this
Statement beginning March 1, 2009. It is not believed that this will
have an impact on the Company's consolidated financial position, results
of operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in
Statement 141. This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree; (b) recognizes and
measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement applies
prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. An entity may not apply it before that
date. The effective date of this statement is the same as that of the
related FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The Company will adopt this statement beginning
March 1, 2009. It is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Liabilities-Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. This
option is available to all entities. Most of the provisions in FAS 159
are elective; however, an amendment to FAS 115 Accounting for Certain
Investments in Debt and Equity Securities applies to all entities with
available for sale or trading securities. Some requirements apply
differently to entities that do not report net income. SFAS No. 159 is
effective as of the beginning of an entity's first fiscal year that
66
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes
that choice in the first 120 days of that fiscal year and also elects to
apply the provisions of SFAS No. 157 Fair Value Measurements. The
Company will adopt SFAS No. 159 beginning March 1, 2008 and is currently
evaluating the potential impact the adoption of this pronouncement will
have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement
does not require any new fair value measurements. However, for some
entities, the application of this statement will change current
practice. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. Earlier application is encouraged, provided
that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period
within that fiscal year. The Company will adopt this statement March 1,
2008, and it is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
Reclassification
----------------
Certain reclassifications may have been made in prior years' financial
statements to conform to classifications used in the current year.
Note 2 - Intangible Assets
The cost to acquire intangible assets in 1999 has been allocated to the
assets acquired according to the estimated fair values and amortized
over a 15 year life using the straight line method. The Company has
adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby the
Company periodically tests its intangible assets for impairment. On an
annual basis, and when there is reason to suspect that their values have
been diminished or impaired, these assets are tested for impairment, and
write-downs will be included in results from operations. No impairment
was identified for the years ended December 31, 2008 and 2007.
67
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
The identifiable intangible assets acquired and their carrying values at
December 31, 2009 and 2008 are:
2009 2008
---- ----
Jingles used in on hold messaging $ 248,247 $ 248,247
Less: Accumulated Amortization (176,012) (155,327)
--------- ---------
Net Intangible Asset $ 72,235 $ 92,920
========= =========
Total amortization expense charged to operations for the quarter ended
December 31, 2009 and 2008 was $4,137 and $4,137 respectively.
Note 3 -Long-term Debt
The long-term debt is a note payable to the former owners, dated July 1,
1999 bearing interest at 6.5% per annum, payable on March 1, 2019. The
balance on the note payable net of current portion on December 31, 2008
was $140,867and on December 31, 2009 it was $131,660.
Note 4 - Due to Related Party
Since 2004, the Company's General Manager has advanced funds to the
Company to purchase materials expensed as costs of goods sold as well as
to occasionally meet payroll obligations. These loans were made through
the use of the General Manager's personal credit cards and personal
loans. As such, the amount of interest accrued is dictated by the
interest rate agreed to through the General Manager's credit agreement.
For the years ended December 31, 2009 and 2008, the net effect of unpaid
advances were $164,070 and $192,808 respectively.
Note 5 - Other Commitments and Contingencies
Lease Agreement
---------------
On March 12, 2008, the Company executed a lease agreement. This lease
agreement covers the office space for the Company's headquarters in
Tulsa, Oklahoma includes 3,000 square feet of finished office space
leased for one year beginning on April 1, 2008 and included a deposit of
$1,500. The lease renews annually and the related rental expense was
$15,100 and $24,000, for 2009 and 2008 respectively. Due to economic
conditions, on July 1, 2009, the monthly rent was reduced to $1000 per
month.
68
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 6 - Going Concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal
course of business. However the Company has reported net losses of
($108,683) and ($110,099) for the years ended December 31, 2008 and
December 31, 2009 respectively. Without the realization of additional
capital, it would be unlikely for the Company to continue as a going
concern. It is management's plan to complete and execute a business
plan in order to supply the needed cash flow.
Note 7 - Subsequent Events
Harcom Productions, Inc., a public company, merged with U.S. Highland,
Inc. on January 22, 2010 with Harcom as the surviving corporation and
with US Highland, Inc. as the name of the merged corporation.
U.S. Highland, Inc. Harcom Eliminations Consolidated
------------------- ------ ------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 492,766 $ 32,696 $ 425,462
Accounts receivable 116,043 41,292 157,335
Inventory 4,254,582 4,254,582
---------- --------- --------- ----------
Total current assets 4,763,391 73,988 - 4,837,379
---------- --------- --------- ----------
Property and Equipment 364,047 217,878 581,925
Accumulated depreciation (5,168) (217,878) (223,046)
---------- --------- --------- ----------
Net property and equipment 358,879 - - 358,879
---------- --------- --------- ----------
Other Assets:
Intangible assets (net of
amortization) - 72,235 72,235
Investment in subsidiary 143,820 - (143,820) -
Deposits 1,102 1,500 2,602
---------- --------- --------- ----------
Total other assets 144,922 73,735 (143,820) 74,837
---------- --------- --------- ----------
Total Assets $5,267,192 $ 147,723 $(143,820) $5,271,095
========== ========= ========= ==========
69
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 7 - Subsequent Events (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 264,097 $ 17,263 $ 281,360
Due to related parties - 164,070 164,070
Current portion of
long-term debt 8,400 9,207 17,607
Accrued liabilities 2,754 2,754
---------- --------- --------- ----------
Total Current Liabilities 275,251 190,540 - 465,791
---------- --------- --------- ----------
Long-Term Liabilities:
Notes payable (net of
current portion) 26,307 131,660 157,967
Deferred income taxes 8,386 - 8,386
---------- --------- --------- ----------
Total Long-Term Liabilities 34,693 131,660 - 166,353
---------- --------- --------- ----------
Stockholders' Equity:
Common stock 100,000 16,375 116,375
Paid in surplus 4,810,149 242,887 (143,820) 4,909,216
Retained earnings(deficit) 47,099 (433,739) (386,640)
---------- --------- --------- ----------
Total Stockholders' Equity
(Deficit) 4,957,248 (174,477) (143,820) 4,638,951
---------- --------- --------- ----------
Total Liabilities and
Stockholders' Equity
(Deficit) $5,267,192 $147,723 $(143,820) $5,271,095
---------- --------- --------- ----------
U.S. Highland, Inc. Harcom Eliminations Consolidated
------------------- ------ ------------ ------------
Revenue $454,182 $ 230,120 $684,302
Cost of Goods Sold - - (88,984)
-------- --------- -------- --------
Gross Profit 454,182 141,136 - 595,318
-------- --------- -------- --------
Operating Expenses:
General and administrative 269,484 70,241 - 339,725
Racing 102,031 102,031
Research and development 15,852 15,852
Selling 35 35
70
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 7 - Subsequent Events (continued)
Depreciation 5,168 5,168
Medical insurance 834 834
Employee compensation 167,889 167,899
-------- --------- -------- --------
Total Operating Expenses 392,570 238,964 - 631,534
Operating Income (Loss) 61,612 (97,828) (36,216)
-------- --------- -------- --------
Other Income (Expense)
Interest income 92 92
Interest expense (13,072) (13,072)
-------- --------- -------- --------
92 (13,072) - (12,980)
-------- --------- -------- --------
Net Income before Income Taxes 61,704 (110,900) (49,196)
Provision for income taxes (11,140) - (11,140)
-------- --------- -------- --------
Net Income (Loss) $ 50,564 $(110,900) $ - $(60,336)
======== ========= ======== ========
71
Up to a maximum of 1,880,087 common shares at $1.50 per Common Share
609,913 common shares on behalf of selling security holders
Prospectus
US Highland, Inc.
June 18, 2010
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS
AND SALES ARE PERMITTED.
Until ______________, 2010, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the small business issuer as provided in the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. US
Highland shall pay the expenses.
SEC Registration Fee $ 266.31
Printing and Engraving Expenses 1,500.00
Legal Fees and Expenses 25,000.00
Accounting Fees and Expenses 30,725.00
Miscellaneous 1,000.00
-----------
TOTAL $ 58,491.00
Item 26. Recent Sales of Unregistered Securities
The registrant sold 609,913 common shares during April and May of
2010 in which the registrant received approximately $774,915 in
paid in capital from the sale of common restricted stock at
approximately $1.25 per share in a private offering.
Name Amount Paid Shares Date
---- ----------- ------ ----
Richard Goglia $ 12,500 10,000 4/12/10
Baurus Co. Limited(1) $106,250 85,000 4/10/10
Ingemar Brorsson $208,962.24 167,170 4/16/10
Iron Invest AB(2) $139,000 111,200 4/16/10
Marcus Bjornsson $ 13,835 11,068 4/19/10
Mikael Svenfelt $ 18,039 14,431 4/15/10
Olof Svenfelt $139,000 111,200 4/29/10
73
Richard Goglia $ 12,500 10,000 4/13/10
Ullared Netto AB(3) $ 69,526.67 55,622 4/16/10
WP Intressenter(4) $ 41,493.07 33,194 4/26/10
Beslag & Metall(5) $ 13,809 11,047 4/14/10
(1) An unaffiliated entity controlled by Bjorn Ohlsen. The entity is
neither a registered broker-dealer nor an affiliate of registered
broker-dealers.
(2) An affiliated entity controlled by Mats Malmberg, an officer and a
director of the registrant. The entity is neither registered broker-
dealer nor an affiliate of registered broker-dealers.
(3) An unaffiliated entity controlled by Frank Gunnarsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(4) An unaffiliated entity controlled by Christer Wagenius. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
(5) An unaffiliated entity controlled by Marcus Bjornsson. The entity
is neither registered broker-dealer nor an affiliate of registered
broker-dealers.
On May 31, 2010, Lemon Tree, an entity controlled by Chase Bales, an
officer and director of the registrant gifted 250,000 common shares to
Jack P. Larrabee, II and 250,000 common shares to KTM Capital, LLC, an
entity controlled by James Holland, a non-affiliate.
All of the above securities were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933 to
sophisticated investors.
Item 27. Exhibits
INDEX TO EXHIBITS Exhibit Number and
Identification of Exhibit
(3) Articles of Incorporation, By-Laws and Stock Option Plan
(i) Articles of Organization as a Limited Liability Company on
February 5, 1999 under the name The Powerhouse, L.L.C.
incorporated by reference to Form SB-2 filed on December 27, 2006.
(ii) Articles of Amendment filed on February 26, 1999 incorporated by
reference to Form SB-2 filed on December 27, 2006.
(iii) Articles of Conversion filed November 9, 2006 incorporated by
reference to Form SB-2 filed on December 27, 2006.
(iv) Articles of amendment filed November 29, 2006 to the certificate
of incorporation incorporated by reference to Form SB-2 filed on
December 27, 2006.
(v) Articles of Merger filed on January 25, 2010.
74
(vi) Bylaws incorporated by reference to Form SB-2 filed on December
27, 2006
(5) Opinion of Jody M. Walker, Attorney At Law(2)
(10) Material Contracts
(i) Asset purchase agreement dated December 21, 2009 incorporated by
reference to Form 8-K filed January 7, 2010
(ii) Transfer and assumption of liabilities agreement dated December
21, 2009 incorporated by reference to Form 8-K filed January 7,
2010
(iii) Convertible debenture dated December 21, 2009 incorporated by
reference to Form 8-K filed January 7, 2010
(iv) Highland Group AB and US Highland, Inc. IP Assignment
Agreement dated March 31, 2010 incorporated by reference to
Form 10-Q for the quarter ended March 31, 2010 filed May
14, 2010
(v) ATK of Oklahoma and US Highland Asset Purchase Agreement
dated March 31, 2010 incorporated by reference to Form 10-Q
for the quarter ended March 31, 2010 filed May 14, 2010
(vi) Black Widow ATV Works and US Highland Asset Purchase
Agreement dated March 31, 2010 incorporated by reference to
Form 10-Q for the quarter ended March 31, 2010 filed May
14, 2010
(vii) RSGA and US Highland Asset Purchase Agreement dated March
31, 2010 incorporated by reference to Form 10-Q for the
quarter ended March 31, 2010 filed May 14, 2010
(viii)Agreement between Lemon Tree Financial Group, LLC and US
Highland dated May 31, 2010
(11) Statement of Computation of Per Share Earnings This Computation
appears in the Financial Statements.
(21) Subsidiaries of the registrant. None
(23)(i) Consent of Certified Public Accountants
(23)(ii) Consent of Jody M. Walker, Attorney At Law, included in
Exhibit 5
74
Item 28. Undertakings
(a) The undersigned registrant undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a) (3) of the
Securities Act;
ii. Reflect in the prospectus any facts or events arising after
the effective date of which, individually or together, represent a
fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered, if the total dollar value of securities offered
would not exceed that which was registered and any deviation from the
low or high end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the SEC in accordance with Rule
424(b) of this chapter, if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
iii. Include any additional or changed material on the plan of
distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered, and the
offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining liability under the Securities
Act to any purchaser in the initial distribution of the securities, the
undersigned small business issuer will be a seller to the purchaser and
will be considered to offer or sell such securities to such purchaser:
i. Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed
pursuant to Rule 424 (section 230.424 of this chapter);
ii. Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned small business issuer or used or
referred to by the undersigned small business issuer;
iii. The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned small
business issuer or its securities provided by or on behalf of the
undersigned small business issuer; and
iv. Any other communication that is an offer in the offering made
by the undersigned small business issuer to the purchaser.
75
(5) That, for the purpose of determining liability under the Securities
Act of 1933 to any purchaser:
i. If US Highland is relying on Rule 430B (230.430B of this
chapter):
A. Each prospectus filed by US Highland pursuant to Rule 424(b) (3)
shall be deemed to be part of the registration statement as of the date
the filed prospectus was deemed part of and included in the registration
statement; and
B. Each prospectus filed by US Highland pursuant to Rule 424(b) (2), (b)
(5), or (b) (7) as part of the registration statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a) (1) (i),
(vii), or (x) for the purpose of providing the information required by
section 10(a) of the Securities Act of 1933 shall be deemed to be part
of the first contract of sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior
to such effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such effective date; or
ii. If US Highland is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of the registration statement relating
to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of
the date it is first used after effectiveness. Provided, however, that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or
made in any such document immediately prior to such date of first use.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, US
Highland, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form S-1 and authorized
this registration statement to be signed on its behalf by the
undersigned, in the City of Mounds, State of Oklahoma on the 18th day of
June 2010.
US Highland, Inc.
/s/Mats Malmberg
------------------------------
By: Mats Malmberg, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on
behalf of the Corporation and in the capacities and on the dates
indicated.
/s/Steven Moel CEO June 18, 2010
-------------------
/s/Mats Malmberg Director June 18, 2010
-------------------
/s/Chase Bales COO/Director June 18, 2010
-------------------
/s/Damian Riddoch CFO/Principal Financial
------------------- Officer June 18, 2010
