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EX-31.1 - CERTIFICATION - US Highland, Inc.uhln_ex311.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the annual period ended December 31, 2016

 

or

 

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

 

For the transition period from __________ to __________

 

Commission File No.: 00-54624

 

US HIGHLAND, INC.

(Exact name of registrant as specified in its charter)

 

Oklahoma

26-4144571

(State or other jurisdiction of incorporation)

(IRS Employer Identification No.)

 

3500 Lennox Road, Suite 1500, Atlanta, Georgia 30309

(Address of principal executive offices)

 

(404) 419-2253

(Registrant’s telephone number, including area code)

 

1170 Peachtree St., Suite 1200, Atlanta, Georgia 30309

Former name, former address and former fiscal year, if changed since last report

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act Yes ¨ No x

 

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 and Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to files such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes. ¨ No. x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to files such reports). Yes. ¨ No. x

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act). Yes. ¨ No. x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $898,170 on January 24, 2018, by reference to the price at which the common equity was last sold.

 

As of February 6, 2018 there were 345,450,049 shares of the registrant’s common stock, par value $0.01 per share outstanding.

 

 
 
 
 

Table of Contents

 

FORWARD LOOKING STATEMENTS

3

 

PART I

 

Item 1.

Business

4

 

Item 1A.

Risk Factors

4

 

Item 1B.

Unresolved Staff Comments

4

 

Item 2.

Property

4

 

Item 3.

Legal Proceedings

4

 

Item 4.

Mine Safety Disclosures

4

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

5

 

Item 6.

Selected Financial Data

5

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

6

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

6

 

Item 8.

Financial Statements and Supplemental Data

F-1

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

7

 

Item 9A.

Controls and Procedures

7

 

Item 9B.

Other Information

7

 

PART III

 

Item 10.

Directors and Executive Officers and Corporate Governance

8

 

Item 11.

Executive Compensation

10

 

Item 12.

Securities Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

11

 

Item 13.

Certain Relationships and Related Transactions and Director Independence

12

 

Item 14.

Principal Accounting Fees and Services

12

 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

13

 

SIGNATURES

14

 

 
2
 
Table of Contents

 

FORWARD LOOKING STATEMENTS

 

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

 

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

 

 
3
 
Table of Contents

 

PART I

 

Item 1. Business.

 

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

 

The Company exited the recreational power sports OEM and leisure activity vehicles markets and is evaluating alternative means to generate ongoing streams of revenue.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item of Form 10-K.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Property.

 

The Company currently has no ownership or leases of property. The Company’s business mailing address is 3500 Lennox Road, Suite 1500, Atlanta, Georgia 30309. The Company’s primary phone number is 918-558-1358.

 

Item 3. Legal Proceedings.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

On February 22, 2016, the Company entered into a Release of Claims and Settlement Agreement with John R. Fitzpatrick, III, Steven Pfaff, and certain of the Company’s officers and directors. Pursuant to the settlement agreement, the parties discharged each other from all claims actions, demands, costs, losses, damages, and expenses relating to Mr. Fitzpatrick’s and Mr. Pfaff’s previous employment with the Company in consideration for an aggregate settlement amount of $200,000 in two installments. The Company and the directors also agreed to execute and deliver a pocket judgement against them which shall not be filed unless the Company fails to make the scheduled payments under the settlement agreement.

 

On February 13, 2017, Baum Glass & Jayne PLLC (“Plaintiff”) obtained a default judgment against the Company in the amount of $27,083.74. Plaintiff has not attempted enforced collection. The amount was included in accounts payable as of December 31, 2016 and 2015.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

 
4
 
Table of Contents

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

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”. Over the course of the past 52 weeks, UHLN has traded at a low of $0.0003 and a high of $0.0091.

 

Registered Holders of Our Common Stock

 

As at December 31, 2017, there were approximately 132 record holders of our common stock.

 

Dividends

 

Holders of the Company’s common stock are entitled to receive such dividends as may be declared by its board of directors. No dividends on the Company’s common stock have ever been paid, and the Company does not anticipate that dividends will be paid on its common stock in the foreseeable future.

 

Securities Authorized for issuance under equity compensation plans.

 

No securities are authorized for issuance by the Registrant under equity compensation plans.

 

Recent Sales of Unregistered Securities

 

On July 13, 2017, the Company issued 29,788,980 shares of common stock to settle $8,800 on a debt conversion with Union Capital, LLC, a significant shareholder of the Company.

 

The Company issued the above-mentioned notes in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(a)(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) each purchaser of the securities was an “accredited investor,” as defined under the Securities Act.

 

Capitalization

 

Under our Articles of Incorporation, as amended, we are authorized to issue up to 500,000,000 shares of common stock, par value $0.01 per share, and up to 3,550,000 shares of “blank check” preferred stock, par value $0.01 per share. As of December 31, 2017, there were 345,450,049 shares of common stock issued and outstanding. As of December 31, 2017, 3,500,000 shares of “blank check” preferred stock were designated as Series A Preferred Stock and 10,000 shares were designated as Series B Preferred Stock, of which 3,381,520 and 5,000 were issued and outstanding, respectively.

 

Item 6. Selected Financial Data.

 

Not applicable to a smaller reporting company.

 

 
5
 
Table of Contents

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Results of Operations

 

The twelve-month period ended December 31, 2016 compared to the twelve-month period ended December 31, 2015

 

Revenues

 

The Company had no revenues.

 

Operating Expenses

 

Operating general and administrative expenses decreased 662% due to a decrease in ongoing business operations. External professional fees increased 5% due to payments made to former executives as part of a $200,000 labor settlement.

 

Net Income (Loss)

 

The Company recognized gains in connection with writing off accounts payable aged over five years. The Company incurred losses to the extent of writing off of various assets at book value. In addition, the Company experienced a decrease in the fair value of its derivatives over the prior-year periods from the conversion of promissory notes from the prior year. See Note 1 to the Company’s Financial Statements.

 

Liquidity and Capital Resources

 

Initially, because the Company borrowed funds on a convertible basis, the Company’s cash position was positive. Overall, however, the Company, experienced a decreased cash position due to the decrease in ongoing business operations, because all operating expenses were paid out of cash on hand. In addition, the Company experienced a decrease in non-cash resources in connection the conversion of promissory notes. See Notes 5 and 7 to the Company’s Financial Statements.

 

Going Concern

 

The Company has no revenues and has incurred net losses. In addition, at December 31, 2016, there was an accumulated deficit of $74,543,629. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

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

 

Off Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

 

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item of Form 10-K.

 

 
6
 
Table of Contents

 

Item 8. Financial Statements and Supplemental Data.

 

Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

F-2

 

Consolidated Balance Sheets

 

F-3

 

Consolidated Statements of Operations

 

F-4

 

Consolidated Statement of Stockholders’ Deficit

 

F-5

 

Consolidated Statements of Cash Flows

 

F-6

 

Notes to the Consolidated Financial Statements

 

F-7

 

 
F-1
 
Table of Contents

 

 

  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of U.S. Highland, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of U.S. Highland, Inc. and Subsidiaries (“the Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Consideration of the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has recurring losses from operations, negative working capital, and an accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

Fruci & Associates II, PLLC

 

We have served as the Company’s auditor since 2017.

 

Spokane, Washington

February 9, 2018

 

 

 
F-2
 
Table of Contents

 

US Highland, Inc.

 

Consolidated Balance Sheets

 

 

 

December 31

2016

 

 

December 31

2015

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$ 260

 

 

$ 13,563

 

Prepaid expenses

 

 

-

 

 

 

93,029

 

Deposit in Highlon acquisition

 

 

-

 

 

 

150,000

 

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

260

 

 

 

256,592

 

Deposits

 

 

 

 

 

 

4,664

 

Property and equipment, net

 

 

 

 

 

 

4,708

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 260

 

 

$ 265,964

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 283,879

 

 

$ 626,883

 

Accrued liabilities ($177,852 and $361,992 related parties, respectively)

 

 

539,844

 

 

 

615,324

 

Advances from Highlon

 

 

-

 

 

 

26,000

 

Convertible debentures, net of discounts of $180,716 and $500,000, respectively

 

 

527,150

 

 

 

52,333

 

Derivative liabilities

 

 

402,881

 

 

 

16,886,192

 

Loans payable ($370,000 and $180,000 related parties, respectively)

 

 

481,000

 

 

 

367,000

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

2,234,754

 

 

 

18,573,732

 

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred stock, 40,000 shares authorized, par value $0.01; no shares issued and outstanding

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Series A Preferred stock, 3,500,000 shares authorized, par value $0.01; 3,381,520 shares issued and outstanding

 

 

33,815

 

 

 

33,815

 

 

 

 

 

 

 

 

 

 

Series B Preferred stock, 10,000 shares authorized, par value $0.01; 5,000 shares issued and outstanding

 

 

50

 

 

 

50

 

 

 

 

 

 

 

 

 

 

Common stock, 500,000,000 shares authorized, $0.01 par value; 315,661,069 and 58,162,669 shares and outstanding at December 31, 2016 and 2015 respectively

 

 

3,156,612

 

 

 

581,627

 

 

 

 

 

 

 

 

 

 

Common stock reserved for future issuance; 316,500 shares, at December 31, 2015

 

 

-

 

 

 

197,865

 

 

 

 

 

 

 

 

 

 

Treasury stock, at cost – 58,333 shares

 

 

(773,500 )

 

 

(773,500 )

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

69,892,158

 

 

 

69,697,929

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(74,543,629 )

 

 

(88,045,554 )

 

 

 

 

 

 

 

 

 

Total Stockholders’ Deficit

 

 

(2,234,494 )

 

 

(18,307,768 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$ 260

 

 

$ 265,964

 

 

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

 

 
F-3
 
Table of Contents

 

US Highland, Inc.

 

Consolidated Statements of Operations

 

 

 

For the Year Ended

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

$

 

 

$

 

 

 

 

 

 

 

 

Revenue

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Depreciation

 

 

2,252

 

 

 

5,580

 

General and administrative

 

 

39,014

 

 

 

297,352

 

Professional fees

 

 

220,794

 

 

 

210,835

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

262,060

 

 

 

513,767

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(262,060 )

 

 

(513,767 )

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(817,841 )

 

 

(1,011,790 )

Change in fair value of derivatives

 

 

16,932,425

 

 

 

14,603,888

 

Gain on settlement of debt

 

 

624,966

 

 

 

1,988,114

 

Loss on Disposal of Assets

 

 

(211,681 )

 

 

-

 

Loss on Convertible Notes

 

 

(2,766,193 )

 

 

-

 

Other income

 

 

2,311

 

 

 

27

 

 

 

 

 

 

 

 

 

 

Total Other Income (Expense)

 

 

13,763,987

 

 

 

15,580,239

 

 

 

 

 

 

 

 

 

 

Net (Loss) Income

 

 

13,501,927

 

 

 

15,066,472

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss) Per Common Share

 

 

 

 

 

 

 

 

-Basic

 

$ 0.11

 

 

$ 0.20

 

-Diluted

 

$ 0.06

 

 

$ 0.08

 

Basic weighted average common shares outstanding

 

 

122,234,935

 

 

 

75,581,000

 

Diluted weighted average common shares outstanding

 

 

237,835,850

 

 

 

180,382,000

 

 

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

 

 
F-4
 
Table of Contents

 

US Highland, Inc.

 

Consolidated Statement of Changes in Stockholders’ Deficit

 

For the Years Ended December 31, 2016 and 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undesignated

Preferred Stock

 

 

Series A

Preferred Stock

 

 

Series B

Preferred Stock

 

 

Common

Stock

 

 

For

Future

 

 

Additional

Paid-in

 

 

Treasury

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Issuance

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

77,727,669

 

 

$ 777,277

 

 

$ 152,236

 

 

$ 54,757,844

 

 

$ (773,500 )

 

$ (103,112,026 )

 

$ (48,198,169 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for exercise of warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

435,000

 

 

 

4,350

 

 

 

 

 

 

(4,133 )

 

 

 

 

 

 

 

 

217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of shares pursuant to a Share Exchange Agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

 

 

50

 

 

 

(20,000,000 )

 

 

(200,000 )

 

 

 

 

 

199,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred shares issued for settlement of debt

 

 

 

 

 

 

 

 

3,381,520

 

 

 

33,815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,815,961

 

 

 

 

 

 

 

 

 

12,849,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on settlement of related party debts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,928,307

 

 

 

 

 

 

 

 

 

1,928,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issuable for accrued interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,629

 

 

 

 

 

 

 

 

 

 

 

 

45,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,066,472

 

 

 

15,066,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

 

 

 

$

 

 

 

3,381,520

 

 

$ 33,815

 

 

 

5,000

 

 

$ 50

 

 

 

58,162,669

 

 

$ 581,627

 

 

$ 197,865

 

 

$ 69,697,929

 

 

$ (773,500 )

 

$ (88,045,554 )

 

$ (18,307,768 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Issued for Debt Conversions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

257,498,400

 

 

$ 2,574,985

 

 

 

 

 

 

 

194,229

 

 

 

 

 

 

 

 

 

 

 

2,769,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Write-off of shares issuable for accrued interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(197,865 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(197,865 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,501,925

 

 

 

13,501,925

 

Balance, December 31, 2016

 

 

 

 

 

$ -

 

 

 

3,381,520

 

 

$ 33,815

 

 

 

5,000

 

 

$ 50

 

 

 

315,661,069

 

 

$ 3,156,612

 

 

$ 0

 

 

 

69,892,158

 

 

 

(773,500 )

 

 

(74,543,629 )

 

$ (2,234,494 )

 

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

 

 
F-5
 
Table of Contents

 

US Highland, Inc.

 

Consolidated Statements of Cash Flows

 

 

 

For the

Year Ended

December 31,

2016

 

 

For the

Year Ended

December 31,

2015

 

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ 13,501,927

 

 

$ 15,066,472

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

2,252

 

 

 

5,580

 

Accretion expense

 

 

693,784

 

 

 

773,700

 

Change in fair value of derivatives

 

 

(16,932,425 )

 

 

(14,603,888 )

Gain on Settlement of assets and payables

 

 

(563,585 )

 

 

(1,988,144 )

Shares issuable for interest expense

 

 

-

 

 

 

45,629

 

Loss on Convertible Debt

 

 

2,766,193

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and deposits

 

 

-

 

 

 

9,533

 

Accounts payable and accrued liabilities

 

 

94,624

 

 

 

131,620

 

Accrued liabilities – related parties

 

 

(56,573 )

 

 

158,279

 

 

 

 

 

 

 

 

 

 

Net Cash Used in Operating Activities

 

 

(493,803 )

 

 

(401,189 )

 

 

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Advances from Highlon

 

 

-

 

 

 

26,000

 

Proceeds from exercise of warrants

 

 

-

 

 

 

217

 

Proceeds from convertible debentures

 

 

285,500

 

 

 

 

Proceeds from loans payable

 

 

195,000

 

 

 

216,000

 

Proceeds from loans payable – related parties

 

 

-

 

 

 

180,200

 

Repayment of loans

 

 

-

 

 

 

(8,500 )

Repayment of loans – related parties

 

 

-

 

 

 

(13,200 )

Net Cash Provided by Financing Activities

 

 

480,500

 

 

 

400,717

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) In Cash

 

 

(13,303 )

 

 

(472 )

 

 

 

 

 

 

 

 

 

Cash - Beginning of Period

 

 

13,563

 

 

 

14,035

 

 

 

 

 

 

 

 

 

 

Cash - End of Period

 

$ 260

 

 

$ 13,563

 

 

 

 

 

 

 

 

 

 

Supplement Cash Flows Information:

 

 

 

 

 

 

 

 

Cash paid for Income Taxes:

 

$ -

 

 

$ -

 

Cash paid for interest

 

$ -

 

 

$ 4,580

 

 

 

 

 

 

 

 

 

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Series A Preferred Shares issued for settlement of debt

 

$ -

 

 

$ 12,849,776

 

Series B Preferred Shares Issued for cancellation of common shares

 

$ -

 

 

$ 200,000

 

Gain on settlement of debts

 

$ -

 

 

$ 1,928,307

 

Common shares issued for payment on convertible debt

 

$ 2,769,213

 

 

$ -

 

 

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

 

 
F-6
 
Table of Contents

  

US HIGHLAND, INC

Notes to the consolidated financial statements

for the year ended December 31 2016

 

1) Summary of Business and Basis of Presentation

 

 

Organization and Business

 

 

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

 

 

On September 23, 2015, the Company incorporated two wholly-owned subsidiaries, USH Distribution Corp., a Nevada corporation, and Powersports Brand Alliance, Inc., a Nevada corporation. The subsidiaries were formed to provide sales, marketing and distribution services of their power sport products and accessories.

 

 

On September 25, 2015, the Company entered into a Joint Venture Agreement with M&M Sourcing Sdn. Bhd., a Malaysian entity (“M&M”) and jointly formed Lahva, Inc., a Nevada corporation (“Lahva”). The Company’s and M&M’s equity stake in Lahva is 40% and 60%, respectively. This agreement has been cancelled.

 

 

Basis of Presentation

 

 

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

 

 

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

 

 

Going Concern

 

 

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from operations, and as of December 31, 2016, current liabilities exceed current assets by $2,234,494 and the Company has an accumulated deficit of $74,543,629. The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, internally generated working capital and monetization of intellectual property assets. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company’s development and marketing efforts.

 

 

Description of New Business Decisions

 

 

On September 30, 2016, the company recognized write off of debt and prepaid expenses under the Oklahoma Statutes, Title 12, Section 12-95.A.1. and Section 12-95.A.2. for expired period of limitations.

 

 
F-7
 
Table of Contents

 

2.

Summary of Significant Accounting Policies

 

 

 

 

a) Principles of Consolidation

 

 

 

 

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, USH Distribution Corp., and Powersports Brand Alliance, Inc. All significant intercompany transactions and balances have been eliminated.

 

 

 

 

b) Use of Estimates

 

 

 

 

The preparation of these consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, stock-based compensation, derivative liabilities, deferred income tax asset valuations, fair values of financial instruments and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

 

 

 

c) Reclassifications

 

 

 

 

Certain amounts in the prior period presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net loss.

 

 

 

 

d) Cash and Cash Equivalents

 

 

 

 

The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.

 

 

 

 

e) Property and Equipment

 

 

 

 

Property and equipment are stated at cost less accumulated depreciation. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets acquired as follows:

 

 

Computers and office equipment

 

3 years

 

Manufacturing equipment

 

5 - 10 years

 

 

f) Fair Value Measurements

 

 

 

 

The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:

 

 

 

 

 

Level 1 – quoted prices for identical instruments in active markets.

 

 

 

 

 

Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and.

 

 

 

 

 

Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

 

 

 

 

Financial instruments consist principally of cash and cash equivalents, loan receivable, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2016 or 2015. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

 

 

 

 

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 8 for additional information

 

 
F-8
 
Table of Contents

  

 

g) Income Taxes

 

 

 

 

The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely that not that all or a portion of a deferred tax asset will not be realized. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December 31, 2016 or 2015.

 

 

 

 

h) Research and Development

 

 

 

 

Research and development costs are expensed as incurred.

 

 

 

 

i) Basic and Diluted Net Loss Per Common Share

 

 

 

 

Basic earnings (loss) per common share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. The calculation of basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same. At December 31, 2016 and 2015, approximately 115,600,915 and 50,986,000 shares, respectively, underlying the convertible debentures and warrants were antidilutive.

 

 

 

 

j) Subsequent Events

 

 

 

 

The Company’s management reviewed all material events through the issuance date of this report for disclosure purpose.

 

 

 

 

k) Recently Issued Accounting Pronouncements

 

 

 

 

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

  

3. Deposit on Highlon Distribution Inc. Acquisition

 

 

On December 30, 2014, the Company entered into a share exchange agreement with Highlon Distribution, Inc. (Highlon). Per the agreement, the Company will exchange 100 shares of the Company’s common stock for 100% of the Highlon shares. In addition, the Company will transfer $150,000 to Highlon within five days from the execution of the agreement. Highlon is a distribution management business focusing on marketing existing product in logistics area. During the year ended December 31, 2016, the Company wrote-off the deposit of $150,000 pursuant to a subsequent settlement agreement with Highlon and the former President of the Company. Pursuant to the settlement agreement, the Company also agreed to pay the former President of the Company an additional $20,185, offset by advances from Highlon of $26,000 and accounts payable to the former President of the Company of $5,885, resulting in a loss on settlement of debt of $138,300.

 

 

4. Property and Equipment

 

 

Depreciation expense amounted to $2,252 and $5,580 for the year ended December 31, 2016 and 2015, respectively.

 

 

On September 30, 2016, the company wrote off the property and equipment that was disposed.

 

 
F-9
 
Table of Contents

 

5. Loans Payable

 

Loans payable consist of the following:

 

December 31,

2016

 

 

December 31,

2015

 

a)

Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing on September 30, 2016, the company recognized write off of debt under the Oklahoma Statutes, Title 12, Section 12-95.A.1. and Section 12-95.A.2. for expired period of limitations.

 

$ -

 

 

$ 25,000

 

b)

On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at June 30, 2016, and December 31, 2015, the Company recognized the fair value of $136,082 and $135,365, respectively, of the 177,500 and 176,500 common shares issuable for interest expense as shares reserved for future issuance. The Company has not yet issued these common shares. As at June 30, 2016, the Company has also accrued interest expense of $36,680 (December 31, 2015 - $33,320). September 30, 2016, the company recognized write off of debt under the Oklahoma Statutes, Title 12, Section 12-95.A.1. and Section 12-95.A.2. for expired period of limitations.

 

$ -

 

 

$ 56,000

 

c)

On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly.

 

$ 27,000

 

 

$ 27,000

 

d)

On February 27, 2014, and March 19, 2015, the Company received advances from a director of $6,000, and $10,200, respectively. During the year ended December 31, 2015, the Company repaid $13,200. The advances are unsecured, due on demand and bears interest at 1% per annum compounded and calculated monthly.

 

$ 3,000

 

 

$ 3,000

 

e)

On September 18, 2014, May 29, 2015, July 3, 2015, December 2, 2015, and January 4, 2016, the Company entered into unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $35,000, $4,000, $5,000, $22,000, and $45,000, respectively. The loans bear interest at 8% per annum compounded annually and are due 1 year after the date of issuance.

 

$ 111,000

 

 

$ 66,000

 

f)

On December 4, 2014, January 29, 2015, August 12, 2015, August 21, 2015, September 1, 2015, September 15, 2015, November 13, 2015, and December 23, 2015, the Company issued unsecured notes payable of $20,000, $20,000, $20,000, $25,000, $40,000, $25,000, $30,000 and $10,000, respectively, to a significant shareholder. The notes bear interest at an annual rate of 8% per annum, are uncollateralized, and due 1 year after the date of issuance.

 

$ 190,000

 

 

$ 190,000

 

g)

On September 2, 2016 the Company issued an unsecured note payable of $100,000 respectively to a significant shareholder. The note bears interest at an annual rate of 5% per annum, is uncollateralized, and due 1 year after the date of issuance.

 

$ 100,000

 

 

 

-

 

h)

On September 2, 2016 the Company issued an unsecured note payable of $50,000 respectively to a significant shareholder. The note bears interest at an annual rate of 5% per annum, is uncollateralized, and due 1 year after the date of issuance.

 

$ 50,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$ 481,000

 

 

$ 367,000

 

 

Less Short-Term Portion

 

 

(481,000 )

 

 

(367,000 )

 

Long Term Loans Payable

 

$ -

 

 

$ -

 

 

6.

Related Party Transactions

 

 

 

 

a) Accrued liabilities owed as of December 31, 2016 and 2015 are $177,582 and $361,992, respectively. Amounts consist of wages, consulting fees, and expense reimbursements owed to former officers and directors.

 

 

 

7.

Convertible Debentures

 

 

 

 

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

 

 
F-10
 
Table of Contents

 

 

 

On June 2, 2010, the Company issued 6,386 restricted shares of common stock upon the conversion of the principal amount of $166,667. The fair value of the derivative liability at June 2, 2010, was $266,425 and $197,352 was reclassified to additional paid-in capital upon conversion. During the year ended December 31, 2013, the Company repaid $2,000 of the note, during the year ended December 31, 2014, the Company repaid an additional $3,000 and during the year ended December 31, 2015, the Company repaid $1,000. At December 31, 2015, the carrying value of the note was $52,333. The note is in default at December 31, 2015. The note was written off during the quarter ended September 30, 2016.

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

 

 

 

On July 24, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014, and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $474,668. The Company also recognized the fair value of the embedded conversion feature of $24,501,757 as a derivative liability and reduced the value of the convertible loan to $nil.

 

 

 

 

 

On December 31, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2015. Interest shall accrue at 12% per annum but may be reduced to 8% for any period of time in which the interest is paid in cash and not accrued. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $411,820. The Company also recognized the fair value of the embedded conversion feature of $25,088,180 as a derivative liability and reduced the value of the convertible loan to $nil.

 

 

 

 

 

On December 31, 2015, the Company and the note holder agreed to extend the maturity date to December 31, 2016. Interest shall accrue at 12% per annum but may be reduced to 8% for any period of time in which the interest is paid in cash and not accrued. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a gain on extinguishment of debt of $492,585. The Company also recognized the fair value of the embedded conversion feature of $16,507,415 as a derivative liability and reduced the value of the convertible loan to $nil.

 

 

 

 

 

During the year ended December 31, 2015, the Company recorded total accretion of $500,000. At December 31, 2016 and 2015, the carrying value of the note was $ 500,000 and $nil with a discount of $nil and $500,000, respectively.

 

 
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c) On February 11, 2016, the Company entered into two convertible promissory notes for a total of $275,000, pursuant to which the Company received proceeds of $237,500, net of an original issue discount of $25,000 and legal fees of $12,500. The notes are convertible at a price equal to 60% of the lowest trading price of the Company’s common stock for the 20 prior trading days, bearing interest at 8% per annum and due on February 11, 2017. Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liabilities of $308,492 resulted in a full discount to the note payable of $250,000 and the recognition of $59,492 as additional interest expense.

 

 

 

 

During the year ended December 31, 2016, the Company recorded total accretion of $135,260 a portion of the principal was converted during the year, see Note 10. At December 31, 2016, the carrying value of the notes was $135,260 with unamortized discount of $139,740.

 

 

 

 

d) On May 17, 2016, the Company entered into a convertible promissory note for $55,000, pursuant to which the Company received proceeds of $48,000, net of an original issue discount of $5,000 and legal fees of $2,000. The notes are convertible at a price equal to 55% of the lowest trading price of the Company’s common stock for the 20 prior trading days, bearing interest at 8% per annum and due on May 17, 2017. Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liabilities of $95,047 resulted in a full discount to the note payable of $50,000 and the recognition of $45,047 as additional interest expense.

 

 

 

 

During the year ended December 31, 2016, the Company recorded total accretion of $9,544. At December 13, 2016, the carrying value of the notes was $9,544 with unamortized discount of $45,456.

  

8. Derivative Liabilities

 

 

The embedded conversion options of the Company’s convertible debentures described in Note 5 contain conversion features that qualify for embedded derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.

 

 

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

 

 

 

Year Ended

December 31,

2016

 

 

Year Ended

December 31,

2015

 

 

 

 

 

 

 

 

Balance at the beginning of the period

 

$ 16,886,192

 

 

$ 46,065,517

 

 

 

 

 

 

 

 

 

 

Addition of new derivative liabilities

 

 

403,539

 

 

 

-

 

Change in fair value of warrants

 

 

(290,276 )

 

(763,397)

 

Change in fair value of embedded conversion option

 

 

(16,596,574 )

 

(13,840,491)

 

Modification of embedded conversion options

 

 

-

 

 

 

7,415

 

Derecognizing of derivative liabilities upon settlement of convertible notes

 

 

-

 

 

 

(14,582,852 )

 

 

 

 

 

 

 

 

 

Balance at the end of the period

 

$ 402,881

 

 

$ 16,886,192

 

 

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

 

 

 

Expected

Volatility

 

Risk-free

Interest Rate

 

Expected

Dividend

Yield

 

 

Expected

Life

(in years)

 

At December 31, 2015

 

134% - 216%

 

0.20% - 1.03%

 

 

0 %

 

0.25 - 2.50

 

At December 31, 2016

 

142% - 357%

 

0.33% - 0.58%

 

 

0 %

 

0.25 – 1.00

 

 

 
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9.

Preferred Stock

 

 

 

a) On September 30, 2015, the Company designated 3,500,000 shares of the Company’s 3,550,000 authorized “blank check” preferred stock as Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock shall, with respect to dividend rights, rights on liquidation, winding up and dissolution, rank senior to (i) all classes of common stock of the Company and (ii) any class or series of capital stock of the Company hereafter created (unless, with the consent of the holders of Series A Convertible Preferred Stock). The holders of the Series A Preferred Stock shall not entitled to receive any dividends and shall have the voting equivalency of 10 shares of common stock. Each holder of Series A Preferred Stock shall have the right at any time or from time to time from and after the day immediately following the date the Series A Preferred Stock is first issued, to convert each share of Series A Preferred Stock into 10 fully-paid and non-assessable share of common stock, par value $0.01 per share, of the Company. In connection with any conversion hereunder, each holder of Series A Convertible Preferred Stock if such conversion would cause such holder or any of its assignees to beneficially own more than 4.99% of the common stock of the Company.

 

 

 

 

b) On September 30, 2015, the Company issued an aggregate of 3,381,520 shares of Series A Convertible Preferred Stock at a fair value of $12,849,776 to settle convertible and promissory notes in the amount of $1,487,000 and accrued interest of $203,760. The Company recorded a gain on settlement of debt of $1,495,529.

 

 

 

 

c) On November 20, 2015, the Company designated 10,000 shares of the Company’s 3,550,000 authorized “blank check” preferred stock as Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock shall, with respect to dividend rights, rights on liquidation, winding up and dissolution, rank senior to (i) all classes of common stock of the Company and (ii) any class or series of capital stock of the Company hereafter created (unless, with the consent of the holders of Series B Convertible Preferred Stock). The holders of the Series B Preferred Stock shall not entitled to receive any dividends and shall have the voting equivalency of 4,000 shares of common stock. Each holder of Series B Preferred Stock shall have the right at any time or from time to time from and after the day immediately following the date the Series B Preferred Stock is first issued, to convert each share of Series B Preferred Stock into 4,000 fully-paid and non-assessable share of common stock, par value $0.01 per share, of the Company. In connection with any conversion hereunder, each holder of Series B Convertible Preferred Stock if such conversion occurred would cause such holder or any of its assignees to beneficially own more than 4.99% of the common stock of the Company.

 

10.  

Common Stock

 

 

 

 

a) On October 8, 2015, the Company issued 435,000 shares of common stock for proceeds of $217 upon the exercise of warrants.

 

 

 

 

b) On November 20, 2015, the Company entered into a share exchange agreement with a significant shareholder of the Company, whereby the shareholder exchanged 20,000,000 shares of common stock for 5,000 shares of Series B Convertible Preferred Stock.

 

 

 

 

c) During August, 2016, the Company issued 38,479,487 shares of common stock to settle $47,904 on debt conversions with two significant shareholders of the Company.

 

 

 

 

d) During September, 2016, the Company issued 115,989,052 shares of common stock to settle $56,552 on a debt conversion with two significant shareholders of the Company.

 

 

 

 

e) On October 6, 2016, the Company issued 24,705,278 shares of common stock to settle $4,330 on a debt conversion with two significant shareholders of the Company

 

 

 

 

f) On November 1, 2016 the Company issued 11,840,583 shares of common stock to settle $1,575 on a debt conversion with a significant shareholder of the Company.

 

 

 

 

g) On November 3, 2016 the Company issued 11,800.00 shares of common stock to settle $1,640 on a debt conversion with a significant shareholder.

 

 

 

 

h) On November 4 2016 the Company issued 11,833,333 shares of common stock to settle $1,668 on a debt conversion with a significant shareholder.

 

 

 

 

i) On November 6, 2016 the Company issued 27,900,667 shares of common stock to settle $4,116 on a debt conversion with a significant shareholder.

 

 

 

 

j) On November 15, 2016 the Company issued 15,000,000 shares of common stock to settle $2,235 on a debt conversion with a significant shareholder.

 

 

 

 

k) During November 2016, the Company issued 78,374,583 shares of common stock to settle $11,234 on a debt conversion with two significant shareholders of the Company.

 

 
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Table of Contents

  

11.

Commitments

 

 

 

 

a) On September 28, 2015, USH Distribution, Corp., a wholly owned subsidiary of the Company, (“USH Distribution”) entered into a consignment agreement whereby USH Distribution will sell workwear apparel manufactured by the consignor in the United States. The agreement expired and terminated, due to nonperformance.

 

 

 

 

b) On February 22, 2016, the Company entered into a Release of Claims and Settlement Agreement with John R. Fitzpatrick, III, Steven Pfaff, and certain of the Company’s officers and directors. Pursuant to the settlement agreement, the parties discharged each other from all claims actions, demands, costs, losses, damages, and expenses relating to Mr. Fitzpatrick’s and Mr. Pfaff’s previous employment with the Company in consideration for an aggregate settlement amount of $200,000 in two installments. The Company and the directors also agreed to execute and deliver a pocket judgement against them which shall not be filed unless the Company fails to make the scheduled payments under the settlement agreement. On September 6, 2016, the company paid the remaining $150,000 to settle this dispute in full.

 

 

 

12.

Earnings (Loss) Per Share

 

 

 

A reconciliation of the components of basic and diluted net income per common share is presented in the tables below:

 

 

 

For the Year Ended December 31,

 

 

 

2016

 

 

2015

 

 

 

Income

(Loss)

 

 

Weighted

Average

Common

Shares

Outstanding

 

 

Per

Share

 

 

Income

(Loss)

 

 

Weighted

Average

Common

Shares

Outstanding

 

 

Per

Share

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) attributable to common stock

 

$ 13,501,927

 

 

 

122,234,935

 

 

$ 0.11

 

 

$ 15,066,472

 

 

 

75,581,000

 

 

$ 0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) attributable to common stock, including assumed conversions

 

$ 13,501,927

 

 

 

237,835,850

 

 

$ 0.06

 

 

$ 15,137,982

 

 

 

180,382,000

 

 

$ 0.08

 

 

13. Income Taxes

 

 

The Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefit of net operating losses have not been recognized in the consolidated financial statements because the Company cannot be assured that it is more likely than not that it will utilize the net operating losses carried forward in future years. The Company did not incur any income tax expense for the years ended December 31, 2016, and 2015. At December 31, 2016, $10,378,495 of federal and state net operating losses were available to the Company to offset future taxable income, which will expire commencing in 2030. Given the short history of the Company and the uncertainty as to the likelihood of future taxable income, the Company has recorded a 100% valuation reserve against the anticipated recovery from the use of the net operating losses created at the inception or generated thereafter. The Company will evaluate the appropriateness of the valuation allowance on an annual basis and adjust the allowance as considered necessary. There is a potential that the NOL not be able to be used. The company is currently evaluating the ability to use the NOL in future periods.

 

 

The components of the net deferred tax asset at December 31, 2016, and 2015, the statutory tax rate, the effective tax rate, and the amount of the valuation allowance are indicated below:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

Net operating loss carry forwards

 

$ 6,407,215

 

 

$ 3,528,688

 

 

 

 

 

 

 

 

 

 

Valuation allowance

 

 

(6,407,215 )

 

 

(3,528,688 )

 

 

 

 

 

 

 

 

 

Net deferred taxes

 

$ -

 

 

$ -

 

 

 
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The items accounting for the difference between income taxes computed at the statutory rates and the provisions for income taxes are as follows for the years ended December 31, 2016 and 2015:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

Net loss before taxes

 

$ 13,501,927

 

 

$ 15,066,472

 

Statutory rate

 

 

34 %

 

 

34 %

 

 

 

 

 

 

 

 

 

Computed expected tax (recovery)

 

$ 4,590,655

 

 

$ 5,122,600

 

Depreciation

 

 

2,252

 

 

 

1,897

 

Accretion

 

 

693,784

 

 

 

263,058

 

Gain/Loss on derivatives and convertible notes

 

 

(14,166,232 )

 

 

(4,965,322 )

Gain/Loss on write-down of assets and liabilities

 

 

413,285

 

 

 

(675,959 )

Shares issuable for interest expense

 

 

-

 

 

 

15,514

 

Net operating loss

 

 

(8,466,256 )

 

 

238,212

 

Valuation allowance

 

 

(8,466,256 )

 

 

(238,212 )

 

 

 

 

 

 

 

 

 

Net deferred taxes

 

$ -

 

 

$ -

 

 

The Company follows the provisions of FASB ASC Subtopic 740-10-65-1, Income Taxes. As of December 31, 2016, and 2015, the Company did not recognize any liability for unrecognized tax benefits.

 

 

14.

Subsequent Events

 

 

a) On June 15, 2017, Kevin G. Malone resigned as President and as a member of the Board of Directors (the “Board”) of the Company. The Board appointed Everett M. Dickson as President and Chief Executive Officer of the Company, and the Board appointed Mr. Dickson to fill the Board seat vacated by Mr. Malone.

 

 

 

 

b) On July 13, 2017, the Company issued 29,788,980 shares of common stock to settle $8,800 on a debt conversion with a significant shareholder of the Company.

 

 

 

 

c) On October 30, 2017 the Company issued a convertible note payable of $25,000 respectively. The note bears interest at an annual rate of 10% per annum, is uncollateralized, and due 1 year after the date of issuance.

 

 

 

 

d) On November 18, 2017 the Company issued a convertible note payable of $25,000 respectively. The note bears interest at an annual rate of 10% per annum, is uncollateralized and is due 1 year from the date of issuance.

 

 
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Table of Contents

  

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

As previously reported in a Form 8-K filed on January 11, 2018, January 2, 2018, we engaged Fruci & Associates II, PLLC (“Fruci”) as our principal independent accountants. On January 11, 2018, we dismissed GBH CPAs PC (“GBH”) as the Company’s independent registered public accounting firm. The decision to terminate the services of GBH and retain Fruci as the principal independent accountants was approved by our board of directors.

 

In connection with the foregoing change in accountants, there was no disagreement of the type described in paragraph (a)(1)(iv) if Item 304 of Regulation S-K or any reportable event as described in paragraph (a)(1)(v) of such Item.

 

Item 9A. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “‘Exchange Act’“). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2016 in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information

 

For events subsequent to the time period covered herein, see Note 1 in the Company’s Financial Statements. The Company recognized a write off of notes payable and accounts payable under the Oklahoma Statutes, Title 12, Section 12-95.A.1. and Section 12-95.A.2. with respect to expired period of limitations. The Company obtained a legal opinion in support of its decision to write-off the referenced notes payable and accounts payable.

 

 
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Table of Contents

 

PART III

 

Item 10. Directors and Executive Officers and Corporate Governance

 

The following table sets forth certain information regarding our directors and executive officers:

 

Name

 

Age

 

Position

 

Director Since

 

Everett M. Dickson

 

54

 

President and Chief Executive Officer

 

June 27, 2017

 

Deborah Engles

 

50

 

Interim Chief Financial Officer

 

- -

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Directors are elected by a plurality of the votes cast at the annual meeting of stockholders and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.

 

A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action.

 

Executive officers are appointed by, and serve at the pleasure of, the Board of Directors of the Company, subject to any contractual arrangements.

 

Everett M. Dickson, Director

 

On June 27, 2017, the Board of Directors of the Company appointed Everett M. Dickson as President and Chief Executive Officer of the Company. Mr. Dickson has been serving as a member of the Company’s Board of Directors since June 2017. From 2012 until his joining the Company in June 2017, Mr. Dickson worked in the moist tobacco alternative fuels industry. From 2005 through 2011, Mr. Dickson worked in the alternative fuels industry.

 

Deborah E. Engles, Interim Chief Financial Officer

 

Deborah E. Engles has been serving as the Interim Chief Financial Officer of the Company since August 2014 to July 28 2017. From 2012 to 2014, she served as its Executive Manager of Administration and Finance, and from 2009 to 2012, she served as US Highland Inc.’s Office Manager. From 2006 to 2010, she served as Officer/Manager to several small startup companies.

 

Director Independence

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the Board of Directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.”

 

Family Relationships

 

There are no familial relationships among any of our directors or officers.

 

 
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Table of Contents

 

Involvement in Certain Legal Proceedings

 

None of our directors or executive officers has been involved in any of the following events during the past ten 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 a pending criminal proceeding (excluding traffic violations and other minor offences);

 

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.

 

Audit Committee

 

We currently do not have a separately standing Audit Committee due to our limited size and our Board performs the functions that would otherwise be performed by an Audit Committee.

 

Compensation Committee

 

The Company does not have a Compensation Committee due to our limited size and our Board performs the functions that would otherwise be performed by a Compensation Committee. Our Board intends to form a Compensation Committee when needed.

 

Other Committees

 

We do not currently have a separately-designated standing nominating committee. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our Board, it is not practical for us to have committees other than those described above, or to have more than two directors on such committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and our committees and allocate responsibilities accordingly.

 

Potential Conflicts of Interest

 

Because we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. The Board of Directors has not established an audit committee and does not have a financial expert, nor has the Board established a

 

nominating committee. The Board is of the opinion that such committees are not necessary since the Company has only five directors, and to date, such directors have been performing the functions of such committees. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.

 

Significant Employees

 

We do not have any significant employees other than our current executive officers and directors named in this Report.

 

 
9
 
Table of Contents

  

Code of Ethics

 

We have not yet adopted a code of business conduct and ethics for all of our employees, including our principal executive officer, principal financial officer, principal accounting officer, and directors. We intend to do so in the near future and to post it on our website at www.ushighland.com.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.

 

During the fiscal year ended December 31, 2015, none of our officers and directors filed Section 16(a) reports. The Company’s current officers and directors intends to file such reports in the near future.

 

Other than the foregoing, based solely on our review of the copies of such forms received by us, we believe that all filing requirements applicable to our greater than 10% beneficial owners were complied with under Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2015.

 

Item 11. Executive Compensation

 

The following table sets forth information concerning the total compensation paid or accrued by the Company during the last two fiscal years indicated to (i) all individuals that served as the Company’s principal executive officer or acted in a similar capacity for the Company at any time during the fiscal year ended December 31, 2016; (ii) the two most highly compensated executive officers who were serving as executive officers of the Company at the end of the fiscal year ended December 31, 2016 whose total compensation exceeded $100,000; and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to clause (ii) above but for the fact that the individual was not serving as an executive officer of the Company at the end of the fiscal year ended December 31, 2016.

 

Summary Compensation Table

 

Name & Principal

 

Year Ended December

 

 

Salary

 

 

Bonus

 

 

Stock Awards

 

 

Option Awards

 

 

Non-Equity  Plan Compensation

 

 

Nonqualified

 Deferred Incentive Compensation Earnings

 

 

All Other Compensation

 

 

Total

 

Position

 

 31,

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

  ($)

 

 

($)

 

 

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Josh W. Whitaker (1)

 

2015

 

 

 

144,000 (2)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

144,000 (2)

Deborah Engles

 

2015

 

 

 

74,760

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

74,760

 

Kevin Malone

 

2016

 

 

 

14,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

14,000

 

___________ 

(1) Josh W. Whitaker served as the President and Chief Executive Officer of the Company from May 2014 until his resignation on January 7, 2016.

 

(2) Of which $72,000 was accrued.

 

 
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Director Compensation

 

The Company does not compensate its directors other than the Chairman of the Board 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.

 

Long-Term Incentive Plans

 

As of December 31, 2016, the Company had no group life, health, hospitalization, or medical reimbursement or relocation plans in effect. Further, the Company had no pension plans or plans or agreements which provide compensation on the event of termination of employment or corporate change in control.

 

Item 12. Securities Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of our Common Stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our Common Stock indicated as beneficially owned by them.

 

The following table sets forth information with respect to the beneficial ownership of each class of our voting securities as of December 31, 2017, by (i) each of our directors and executive officers, (iii) all of our directors and executive officers as a group and (iii) each stockholder known by us to be the beneficial owner of more than 5% of our outstanding voting capital stock. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our capital stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company or any of its parents, the operation of which may at a subsequent date result in a change in control of the Company.

 

Unless otherwise indicated in the following table, the address for each person named in the table is c/o US Highland, Inc. 3500 Lennox Road, Suite 1500, Atlanta, Georgia 30309.

 

 

 

 

 Common Stock

 

 

 Series A Preferred Stock Series

 

 

B Preferred Stock

 

Name and Address of Beneficial Owner

 

Amount

 

 

Percent of

Class

 

 

Amount

 

 

Percent of

Class

 

 

Amount

 

 

Percent of

Class

 

 

 

 

 

 

(1)

 

 

 

 

 

(2)

 

 

 

 

 

(3)

Officers & Directors:

Robert H. Harris

-Chairman of the Board of Directors

 

 

436,557

 

 

*

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kevin G. Malone

-President and Director

 

 

1,875

 

 

*

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deborah E. Engles

-Interim Chief Financial Officer

 

 

8,669

 

 

*

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Directors and Officers as a group (3 persons)

 

 

447,211

 

 

*

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5% Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John D. Gibbs Tri Power Resources

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

P.O. Box 849 Ardmore, OK 73402

 

 

8,818,374

 

 

 

15.16 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMHC Managed Services

2 North Cascade Ave., Suite 1400

Colorado Springs, CO 80903

 

 

4,915,707 (4)

 

 

8.45 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Craigstone, Ltd. 88 Wood Street 10th Floor

London, EC2V 7RS United Kingdom

 

 

 

 

 

 

 

 

 

 

2,484,422

 

 

 

73.47 %

 

 

5,000

 

 

 

100 %

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We have not adopted any equity compensation plans.

 

Changes in Control

 

We are not aware of any arrangements, including any pledge by any person of our securities, the operation of which may result in a change in control of the Company. However, pursuant to our Articles of Incorporation, our board has the authority, without further stockholder approval, to provide for the issuance of up to 3,550,000 shares of our preferred stock in one or more series and to determine the dividend rights, conversion rights, voting rights, rights in terms of redemption, liquidation preferences, the number of shares constituting any such series and the designation of such series. Our Board has the power to afford preferences, powers and rights (including voting rights) to the holders of any preferred stock preferences, such rights and preferences being senior to the rights of holders of common stock. As of December 31, 2017, 40,000 shares of “blank check” preferred stock remain available for designation and issuance. Although we have no present intention to issue any additional shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, may have the effect of delaying, deferring or preventing a change in control of our Company.

 

 
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Item 13. Certain Relationships and Related Transactions and Director Independence

 

Under Rule 404 of Regulation S-K, we are required to describe any transaction, since the beginning of December 31, 2015, or any currently proposed transaction, in which the Company was or is to be a participant and in which any related person has or will have a direct or indirect material interest involving the lesser of $120,000 or one percent (1%) of the average of the Company’s total assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director, or holder of 5% or more of the Company’s Common Stock, or an immediate family member of any of those persons.

 

None.

 

Item 14. Principal Accounting Fees and Services

 

On January 11, 2018, we appointed Fruci & Associates II, PLLC of Spokane, Washington, as our new independent certified public accountants beginning with the period ended September 30, 2016, and for subsequent periods.

 

Audit Fees

 

The aggregate fees billed the Company for the fiscal years ended December 31, 2016 and 2015 for professional services rendered by Fruci & Associates II, PLLC (“Fruci”), our principal accountants, respectively, for their audit of our annual financial statements and review of financial statements included in our quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:

  

Fiscal Years Ended December 31, 2016 and 2015:

 

$ 14,500

 

 

Audit-Related Fees

 

The aggregate fees billed the Company for the fiscal years ended December 31, 2016 and 2015 for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant’s financial statements and are not reported under Item 9(e)(1) of Schedule 14A.

 

Fiscal Year Ended December 31, 2016:

 

$ 0

 

Fiscal Year Ended December 31, 2015:

 

$ 0

 

  

Tax Fees

 

The aggregate fees billed the Company for the fiscal years ended December 31, 2016 and 2015 for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.

 

Fiscal Year Ended December 31, 2016:

 

$ 5,000

 

Fiscal year ended December 31, 2015:

 

$ 0

 

 

All Other Fees

 

The aggregate fees billed the Company for the fiscal years ended December 31, 2013 and 2014 for products and services provided by the principal accountant, other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A.

 

Fiscal Year Ended December 31, 2016:

 

$ 0

 

Fiscal year ended December 31, 2015:

 

$ 0

 

 

Pre-Approval Policies and Procedures

 

We have not used Fruci or GBH for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers. We never engaged Fruci or GBH to provide compliance outsourcing services. Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered. The board of directors has considered the nature and amount of fees billed by Fruci and GBH and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independence.

 

 
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Table of Contents

 

Item 15. Exhibits

 

Financial statement included in Part II hereof:

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets

 

Consolidated Statements of Operations

 

Consolidated Statement of Changes in Stockholders’ Deficit

 

Consolidated Statements of Cash Flows

 

Notes to the Consolidated Financial Statements

  

Exhibit

 

 Description

 

 

 

16.1

 

Letter, dated February 8, 2018, from Fruci & Associates, II PLLC to the SEC (Filed as an exhibit to Form 8-K filed on February 2, 2018 and incorporated by reference herein.)

 

 

 

31.1

 

Section 302 Certification of Principal Executive Officer

 

 

 

31.2

 

Section 302 Certification of Principal Financial and Accounting Officer

 

 

 

32.1

 

Section 906 Certification of Principal Executive Officer

 

 

 

32.2

 

Section 906 Certification of Principal Financial and Accounting Officer

 

 
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Table of Contents

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  U.S. HIGHLAND, INC.
       
Date: February 13, 2018 By: /s/ Everett M. Dickson

 

Name:

Everett M. Dickson

 
  Title:

Chief Executive Officer

 
    (Principal Executive Officer)  

 

 

 

 

Date: February 13, 2018

By:

/s/ Everett M Dickson

 

 

Name:

Everett M Dickson

 

 

Title:

Interim Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

 

 

 

14