Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] 15, ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2009
OR
[ ] 15, TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-139685
US HIGHLAND, INC.
(Exact name of registrant in its charter)
Oklahoma 73-1556790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
17424 South Union Avenue
Mounds, OK 74047
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: 918-296-9799
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.01 par value
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 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 232.406 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [x] No [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for at least the part 90 days.
Yes [x] No[ ]
2
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained hereof, and will not be
contained, to will 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. [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of "large accelerated filer,"
"accelerated file" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
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 12b-2 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. The market
value of the registrant's voting $.01 par value common stock held by
non-affiliates of the registrant was approximately $0.00.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The number
of shares outstanding of the registrant's only class of common stock, as
of March 15, 2010 was 21,462,500 shares of its $.01 par value common
stock.
No documents are incorporated into the text by reference.
3
US Highland, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2009
Table of Contents
Part I
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 6
ITEM 1B. UNRESOLVED STAFF COMMENTS 6
ITEM 2. PROPERTIES 7
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
Part II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 8
ITEM 6. SELECTED FINANCIAL DATA 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 31
ITEM 9A. CONTROLS AND PROCEDURES 31
ITEM 9B. OTHER INFORMATION 33
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS AND CORPORATE GOVERANCE; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT 34
ITEM 11. EXECUTIVE COMPENSATION 36
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDERS MATTERS 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE 39
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 40
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 41
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this annual report contain or may contain forward-
looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results,
performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These factors include, but are not limited
to, our ability to raise sufficient capital to fund our ongoing
operations and satisfy our obligations as they become due, our ability
4
to implement our strategic initiatives, economic, political and market
conditions and fluctuations government and industry regulation, interest
rate risk, U.S. and global competition, and other factors. Most of
these factors are difficult to predict any forward-looking statements
that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements and readers should
carefully review this annual report in its entirety. Except for our
ongoing obligations to disclose material information under the Federal
securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. These forward-looking
statements speak only as of the date of this annual report, and you
should not rely on these statements without also considering the risks
and uncertainties associated with these statements and our business.
5
PART I
ITEM 1. BUSINESS
Corporate History
-----------------
US Highland, Inc. was originally formed as a Limited Liability Company
on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to
the laws of the State of Oklahoma. On February 26, 1999, an amendment
was filed that changed the name of the entity to Powerhouse Productions,
L.L.C.
On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of
Conversion changing the entity from a limited liability company to a
corporation under the name Harcom Productions, Inc. On November 29,
2006, articles of amendment to the certificate of incorporation
increased the authorized common shares to 100,000,000 with a par value
of $0.01 per share.
On January 25, 2010, Articles of Merger were filed with the state of
Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into
Harcom Productions, Inc. Pursuant to the Articles of Merger, the name
of the corporation was changed from Harcom Productions, Inc. to US
Highland, Inc.
Prior Operations
----------------
Prior to January 25, 2010, the company offered professional consulting
in Music-on-Hold and messaging services as well some equipment sales and
consultation services for commercial clients.
Subsequent to the merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intends to pursue its business
plan. As a result, the registrant entered into an Asset Purchase
Agreement with Shane Harwell, an officer and director of the Registrant.
Pursuant to the Asset Purchase Agreement dated December 21, 2009, the
registrant sold all rights, title and interest to the Purchased Assets
to Mr. Harwell for the consideration of 950,000 common shares. The
950,000 common shares consisted of 468,750 common shares directly held
by Mr. Harwell, 468,750 common shares acquired by Mr. Harwell from Susan
Harwell, his wife and 12,500 common shares acquired by Mr. Harwell from
Charles Harwell, his father for nominal amounts.
Current Corporate Operations
----------------------------
US Highland has recently moved its manufacturing equipment and tooling
to the United States from Sweden and is currently gearing up to
manufacture its products in Tulsa, Oklahoma. US Highland requires the
services of many manufacturing subcontractors, as is typical for the
industry. US Highland is currently operating from multiple locations in
and around Tulsa and is in the process of consolidating to a larger
location.
6
US Highland's business development strategy includes:
- Multinational Business Model. US Highland will manufacture in
the United States. Engineering will continue primarily in Sweden.
- Acquisitions. US Highland's purpose in becoming a public company
is to raise additional capital 1) to ramp up to much higher production
levels, 2) to launch marketing in the US and Europe, and 3) to fund
strategic acquisitions to offer enhanced share value for US Highland
shareholders.
- Road Shows. US Highland will utilize road shows to promote its
stock, brand, and products.
- Media Promotions. US Highland will fully employ both traditional
and innovative marketing venues to advertise, promote, and drive
Highland brand awareness utilizing the following:
- Internet promotions
- Trade shows and events, including the Indianapolis Dealer Expo
and others
- Trade publication advertisements
- Trade publication editorials and product reviews
- Trade and Business Wire press releases
- Marketing collateral
- Highland Pro Race Team. US Highland will attract media attention
with the Highland Pro Race Team at high profile race events.
- Dealer Network Building and Mass Customization. US Highland will
market direct to qualified high end dealers to build and develop the
Highland dealer network.
- OEM Deals. Highland will develop license and other OEM deals and
use co-branding and co-marketing activities to further its business
development objectives.
Products
--------
US Highland products include single and twin cylinder engines,
motorcycles and ATV's.
Single and Twin Cylinder Engines
Highland has two powerful engine platforms, including its single
cylinder 250-550cc engines and its two cylinder, v-twin 750-1150cc
engines. These engines were developed in Highland's active race
program. US Highland proprietary power plants are lightweight, high
horsepower, and fuel injected. Highland engines also use the
proprietary and patent pending Highland throttle body, which delivers
smooth, linearly proportional throttle response unlike conventional
systems that deliver uneven throttle response.
Motorcycle and Quad Product Line
The new Highland product line is composed of the following vehicles (not
all of which will be released in the next model year), which are based
on the Highland 250-550cc and 750-1200cc engine platforms:
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- 350cc Entry Level Dual Sport
- 450cc MX, Enduro, & Supermotard
- 507cc MX, Enduro, & Supermotard
- 950cc Street Tracker, Dirt Tracker, Outback, & Urban Assault
- 1050cc Viking
- Quads of various sizes
Patents, Trademarks, Intellectual Property, and Proprietary Protection
----------------------------------------------------------------------
Highland has developed a unique and patent pending throttle body which
allows "linear proportional air flow" control to the engine.
Conventional throttle bodies do not have linear response, requiring
operators to mentally adjust to uneven response from the throttle.
The Market, Sales, and Business Development
-------------------------------------------
Highland has created the following market analysis using information
gathered from Dealer Net, JD Powers & Associates, and other industry
data sources.
Highland Target Markets
Highland will target the dual market, off-road and on-road motorcycle
markets with its initial market entry fully capitalizing on its current
product offering. These market segments are to be reached through
qualified dealerships.
Highland has plans to sell to the ATV and possibly UTV markets in the
future with new products currently in development.
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Industry Analysis
Market data for the motorcycle industry shows that the industry is down
in most market segments, illustrating generally poor expected
performance of the powersports industry during 2009.
It is important to note that 45% for on-road motorcycles plus 10.5% for
off-road motorcycles show motorcycles clearly to be the largest market
segment.
Japanese manufacturers collectively dominate powersports market share,
with Honda as the largest OEM, followed by Yahama and Kawasaki. The US
has long been the greatest consumer and promoter of the powersports
industry. Highland has chosen the US market as its primary target and
domicile market as to take advantage of an increasing US-centric
legislation, tax incentive and purchasing sentiment.
Off-Road Seasonality
The off-road motorcycle market is a seasonal business, with the largest
sales occurring during spring. Sales during the winter months are
approximately 50% of peak sales.
The seasonality of the off-road business has traditionally resulted in
stocking orders for next year products in the months of August or
September; however, current economic conditions are likely to delay and
spread out these orders in 2009-2010.
On-Road Motorcycles Market
Comparisons between the dirt bike sales forecast and the total
motorcycle sales forecast illustrates that on-road or street motorcycles
represent a much larger market segment, by a ratio of 4.5:1.
Harley David continues to have the largest market share of this market
segment.
On-Road Seasonality
On-road seasonality is even more severe than off-road seasonality. In
the on-road market segment, summer month sales are the strongest, though
spring sales are within 20-30% of summer sales. Winter sales are as
much as 75% lower than summer sales.
Dual Sport Market
2009 data indicates a drop in this segment. Highland motorcycles are
dual purpose ready.
Scooter Market
Industry data indicates that scooters are becoming a more important
segment each year. This was especially true when gas prices increased
in the United States. Highland has an ongoing scooter development
project.
9
ATV Market
Highland has developed an ATV (quad) product line, not yet ready for
release. The ATV market segment continues to be a large an important
market segment. Forecasts agree that this will continue to be the case
in 2010-11.
Motorcycle Dealer Analysis
JD Powers & Associates Surveys from 2008 and 2009 indicate that the
largest challenge that faced the dealers in 2009 was lack of financing
for inventory flooring and for consumer purchases, pointing to a
significant opportunity for those OEMs capable of either offering
financing or facilitating financing for dealers and/or consumers. This
situation is likely to remain the same or even worsen in 2010.
To match this broadly evidenced market need, Highland may offer through
its dealer network special financing facilities designed to enable
qualifying customers the opportunity to ride Highland. These programs
will be marketed and promoted with specific dealer training focused on
helping them create sales through their established customer base.
Pricing Analysis
As indicated in the above section, purchasing is largely dependant on
consumer ability to acquire financing or credit. Off-road and Dual-sport
unit pricing ranges significantly from the low end Chinese import
"disposable" market to primary global brands. Off-brand bikes receive
little to no credit program support while the large brands offer factory
and dealer backed financing.
Sales
Highland targets premium, high performance motorcycles and ATVs. Sales
through established dealer networks are critical to any power sports
company success. Highland has established relationships with
dealerships nationwide. A survey of dealer interests and constraints was
conducted. From this survey, it is clear that dealers are laboring with
three primary concerns:
1. Record Level Inventories
2. Flooring Costs
3. Reduced Credit Facilities
Highland has established a sales model designed specifically to directly
answer the concerns of the current market and facilitate sales to our
top tier customers.
Business Development
--------------------
Relationships with Other OEMs
Highland and its executives have long history with other powersports
OEMs. As a technology provider, Highland is often perceived to be a
supplier rather than a competitor to other OEMs.
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Acquisition Opportunities
-------------------------
There are currently a number of struggling OEMs that have excellent
intellectual property, great products, multi-national dealer networks,
manufacturing facilities, and substantial revenues. These OEMs have
been caught in the global economic downturn and have not been able to
react quickly enough to changing conditions. With the right mergers and
acquisitions strategy, one or more of these OEMs could add valuable
resources and substantial revenues and profits to Highland.
Nonperforming assets from acquisitions could be sold off or
restructured.
Multi-National Locations
-------------------
Jonkoping, Sweden
Highland Group AB is located in Jonkoping, Sweden (pronounced JEN-sher-
ping). Sweden is well known for its premium powersports and automotive
companies, including Husaberg, Husqvarna, Volvo, Saab, and many others.
As a result, Sweden has many resources for these high technology and
manufacturing intensive businesses, including substantial government and
university support, and many world renowned designers and engineers.
Sweden has a number of significant disadvantages as a manufacturing
center. These disadvantages include:
- Inadequate as a central location for procurement of components and
subassemblies for manufacturing
- Inadequate as a central location for distribution to the world
markets, especially to the United States (increases shipping costs
and lead times)
- High labor costs
- Lengthy, mandatory national vacations
On the other hand, Sweden is an excellent location for ongoing
development and engineering activities:
- Sweden has several readily accessible government programs for
automotive and similar developers
- Sweden is home to a number of world renowned powersports designers
and racers
- Sweden is 'off the map' making it ideal to test new designs
without the watchful eyes of competitors
- Sweden has private capital market investment options that
facilitate and support new product development
Tulsa, Oklahoma
Highland's professional race team has been managed near Tulsa, Oklahoma
for the past two years. The Company has recently strategically
relocated the manufacturing and distribution portions of the business to
Tulsa, retaining product development and engineering activities in
Sweden.
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Tulsa, Oklahoma is located relatively centrally in the United States.
Tulsa is a recognized major North American shipping hub with several
major interstate highways, railways, and an international airport. The
following are road-based shipping distances to other major shipping
hubs:
- Dallas: 257 miles
- Detroit: 947 miles
- Jacksonville: 1070 miles
- Los Angeles: 1437 miles
- Milwaukee: 771 miles
- New York City: 1348 miles
- Salt Lake City: 1206 miles
Tulsa was the original oil capital of the United States before Texas
gained this status. Tulsa remains a significant producer and refiner of
oil. Since the oil and gas industry requires so much equipment and
equipment repair, Tulsa has a large manufacturing base, including
manufacturing space, skilled labor, management and engineering talent,
manufacturing equipment suppliers and service centers, and large
subcontractor base for a wide variety of manufacturing services from
surface coatings and heat treatments to precision machining, casting,
and forging.
Subcontracting
--------------
Many subcontractors are required for the high variety of components
required to produce powersports products. Highland uses subcontractors
for tool and die work, casting, various complex machining operations,
plastic injection molding, and various other capital intensive or low
ROI operations which would therefore be unwise to perform in house.
Vendors, suppliers, and subcontractors are pre-qualified by Highland's
quality and purchasing personnel. Suppliers must meet minimum
capability, lead time, and quality requirements to be eligible to
participate in Highland's vendor and subcontractor pool.
Final Assembly and Quality Assurance
------------------------------------
Final assembly and quality assurance are overseen by Highland's highly
trained technicians. These technicians have many years of cumulative
experience. Many of these technicians have experience in the
professional race environment, where they have been on the leading edge
of testing and refining many of the Company's new developments.
Logistics
---------
Highland has in-house experts in logistics and supply chain management.
These experts monitor product flow from vendors and subcontractors and
to customers.
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Manufacturing Management
------------------------
As a significant percentage of the overall budget of Highland each year
is used to support manufacturing operations, either for new product
development prototyping or volume production, competent management is
essential. Highland's manufacturing managers have extensive experience
in lean manufacturing as practiced in the Toyota Production System,
quality assurance, MRP/ERP, Six Sigma, costing system optimization, and
the various other disciplines required to operate a lean, profitable,
and responsive manufacturing operation.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The registrant's principle executive offices are located at 17424 South
Union, Mounds, OK 74047. The registrant's primary phone number is 918-
296-9799. Current manufacturing operations include 18,000 square feet
for general manufacturing, CNC machining, and final assembly, 5,000
square feet for welding, painting, and machining operations, and 10,000
square feet for administration (lease purchase at $8,500 per month).
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any legal proceedings the outcome of which, in the
opinion of our management, would have a material adverse effect on our
business, financial condition, or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 5(a)
a) Market Information. On March 17, 2008, our common stock was listed
for the first time on the OTC Bulletin Board under the symbol "HRCM".
On March 31, 2010, due to our name change, our symbol was changed to
UHLN.
The following table sets forth the range of high and low bid quotations
for the registrant's common stock. The quotations represent inter-
dealer prices without retail markup, markdown or commission, and may not
necessarily represent actual transactions.
Quarter Ended High Bid Low Bid
3/31/08 none none
6/30/08 .55 .55
9/30/08 .25 .18
12/31/08 .18 .18
3/31/09 .05 .02
6/30/09 .80 .02
9/30/09 .79 .79
12/31/09 .79 .79
b) Holders. At March 15, 2010, there were approximately 60
shareholders of the registrant.
c) Dividends. Holders of the registrant's common stock are entitled to
receive such dividends as may be declared by its board of directors. No
dividends on the registrant's common stock have ever been paid, and the
registrant does not anticipate that dividends will be paid on its common
stock in the foreseeable future.
d) Securities authorized for issuance under equity compensation plans.
No securities are authorized for issuance by the registrant under equity
compensation plans.
e) Performance graph. Not applicable.
f) Sale of unregistered securities. None.
Item 5(b) Use of Proceeds. Not applicable.
Item 5(c) Purchases of Equity Securities by the issuer and
affiliated purchasers. None.
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ITEM 6. SELECTED FINANCIAL DATA
Not applicable to a smaller reporting company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
-------
On January 25, 2010, Articles of Merger were filed with the state of
Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into
Harcom Productions, Inc. Pursuant to the Articles of Merger, the name
of the corporation was changed from Harcom Productions, Inc. to US
Highland, Inc.
Prior to the January 25, 2010, we offered professional consulting in
Music-on-Hold and messaging services as well some equipment sales and
consultation services for commercial clients.
Subsequent to the merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intends to pursue its business
plan. As a result, the registrant entered into an Asset Purchase
Agreement with Shane Harwell, an officer and director of the Registrant.
Pursuant to the Asset Purchase Agreement dated December 21, 2009, the
registrant sold all rights, title and interest to the Purchased Assets
to Mr. Harwell for the consideration of 950,000 common shares. The
950,000 common shares consisted of 468,750 common shares directly held
by Mr. Harwell, 468,750 common shares acquired by Mr. Harwell from Susan
Harwell, his wife and 12,500 common shares acquired by Mr. Harwell from
Charles Harwell, his father for nominal amounts.
Trends and Uncertainties
------------------------
Demand for the registrant's operations will be dependent on, among other
things, market acceptance of the our products and general economic
conditions which are cyclical in nature. Inasmuch as a major portion of
the registrant's activities will be the receipt of revenues from the
sales of licenses of our products and from our interests in joint
ventures, the registrant's business operations may be adversely affected
by the registrant's competitors, foreign economic and government climate
and prolonged recessionary periods.
Capital and Source of Liquidity
-------------------------------
The registrant requires substantial capital in order to expand our
current and strategic business plans. We will need to obtain
significant financing. However, there can be no assurance that we will
be able to obtain additional equity or debt financing in the future, if
at all.
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On a long-term basis, liquidity is dependent on ramping up production,
receipt of revenues as well as additional infusions of capital and debt
financing. The registrant believes that additional capital and debt
financing in the short term will allow us to pursue our larger
fundraising.
Results of Operations
Management plans to seek additional debt and/or equity financing for the
registrant, but cannot assure that such financing will be available on
acceptable terms. The registrant's continuation as a going concern is
dependent upon its ability to ultimately attain profitable operations,
generate sufficient cash flow to meet its obligations, and obtain
additional financing as may be required. The outcome of this
uncertainty cannot be assured.
Plan of Operation
The registrant may experience problems, delays, expenses and
difficulties sometimes encountered by an enterprise in the registrant's
stage of development, many of which are beyond the registrant's control.
These include, but are not limited to, unanticipated problems relating
to the development of our system, employee costs, marketing problems,
additional costs and expenses that may exceed current estimates and
competition.
If we do not obtain at least $1,000,000 proceeds in the next twelve
months from the sale of stock, we may not have sufficient funds to
complete our business plan. There can be no assurance that additional
financing will be available or that, if available, such financing will
be on acceptable terms to enable the registrant to complete development
of or commercialize any of its proposed products.
Off-balance sheet arrangements
The registrant has no such arrangements.
Recent Pronouncements
Management does not anticipate that the new accounting pronouncements
listed above will have a material impact on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
US Highland, Inc.
formerly Harcom Productions, Inc.
Index to the Financial Statements
Report of Independent Registered Public Accounting Firm 17
Financial Statements of Harcom Productions, Inc.:
Balance Sheets as of December 31, 2009 and 2008 18
Statements of Operations For the Years
Ended December 31, 2009 and 2008 19
Statements of Stockholders' Equity (Deficit) For
the Years Ended December 31, 2009 and 2008 20
Statements of Cash Flows For the Years Ended
December 31, 2009 and 2008 21
Notes to Financial Statements 23
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Harcom Productions, Inc.
Tulsa, Oklahoma
To the Board of Directors:
We have audited the accompanying consolidated balance sheets of Harcom
Productions, Inc. for the year ended December 31, 2009 and the related
statements of operations, shareholders' equity, and cash flows for the
year then ended These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. The
financial statements for the year ended December 31, 2008 were audited
by other auditors and their report dated, March 30, 2009 expressed a
going concern issue.
We conducted our audit in accordance with auditing standards of the
Public Company Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Harcom
Productions, Inc. as of December 31, 2009, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency, which raises substantial
doubt about its ability to continue as a going concern. Management's
plans regarding those matters also are described in Note 2. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Hood Sutton Robinson & Freeman CPAs, P.C.
Hood Sutton Robinson & Freeman CPAs, P.C.
Certified Public Accountants
March 31 2010
Tulsa, Oklahoma
18
Harcom Productions, Inc.
Balance Sheets
December 31, 2009 and 2008
ASSETS 2009 2008
---- ----
Current Assets
Cash & Cash Equivalents $ 32,696 $ 8,337
Accounts Receivable, net 41,292 59,243
Other Current Assets - 2,733
--------- ---------
Total Current Assets 73,988 70,313
--------- ---------
Other Assets
Intangible Assets - Less Amortization 72,235 88,783
Deposits 1,500 1,500
--------- ---------
Total Other Assets 73,735 90,283
--------- ---------
TOTAL ASSETS $ 147,723 $ 160,598
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Liabilities $ 17,263 $ 25,689
Due to related parties 164,070 192,808
Note payable (Current) 9,027 8,629
--------- ---------
Total Current Liabilities 190,540 227,126
--------- ---------
Long Term Liabilities, net of current
portion 131,660 140,867
--------- ---------
Total Liabilities 322,200 367,993
--------- ---------
Stockholders' Deficit
Common Stock, Shares Authorized
100,000,000, Par Value $.01 Issued
and Outstanding 1,637,500 shares 16,375 16,375
Additional Paid-In Capital 242,887 99,067
Accumulated Deficit (433,739) (322,839)
--------- ---------
Total Deficit (174,477) (207,397)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 147,723 $ 160,596
========= =========
The accompanying notes are an integral part of these statements
19
Harcom Productions, Inc.
Statements of Operations
For the Years Ended December 31, 2009 and 2008
2009 2008
---- ----
REVENUES
Shipped Products $ 230,999 $ 378,241
Refund/Discounts of Services (879) (1,182)
--------- ---------
Total Revenue 230,120 377,059
--------- ---------
COST OF GOODS SOLD
Commission 22,781 45,971
Materials 49,655 72,550
Amortization Expense 16,548 16,548
--------- ---------
Total Cost of Goods Sold 88,984 135,069
--------- ---------
Gross Profit 141,136 241,990
--------- ---------
OPERATING EXPENSES
General & Administrative 70,241 77,401
Medical Insurance 834 1,655
Employee Compensation 167,889 277,864
--------- ---------
Total Operating Expenses 238,964 356,920
--------- ---------
OTHER EXPENSE
Interest Expense 13,072 19,253
OTHER REVENUE
Consulting Fees - 25,500
--------- ---------
NET LOSS BEFORE INCOME TAXES (110,900) (108,683)
Provision for Income Taxes - -
NET INCOME(LOSS) $(110,900) $(108,683)
========= =========
Earnings (Loss) per common share
basic and full diluted $ (0.07) $ (0.07)
========= =========
Weighted average number of
common shares outstanding 1,637,500 1,637,500
The accompanying notes are an integral part of these statements
20
Harcom Productions, Inc.
Statement of Stockholders' Equity
For the Years Ended December 31, 2009 and 2008
Common Stock
------------ Additional Accumulated
Shares Amounts Paid-in Capital Deficit Total
----------------- ---------------- ------- -----
Balance at December 31, 2007 1,637,000 $16,375 $ 99,067 $(214,156) $ (98,714)
Net loss 2008 - - - (108,683) (108,683)
--------------------------------------------------------
Balance at December 31, 2008 1,637,500 $16,375 $ 99,067 $(322,839) $(207,397)
Capital Contribution 143,820 143,820
Net loss for the year ended
December 31, 2009 (110,900) (174,477)
--------------------------------------------------------
Balance at December 31, 2009 1,637,500 $16,375 $242,887 $(433,739) $(174,477)
--------------------------------------------------------
The accompanying notes are an integral part of these statements
21
Harcom Productions, Inc.
Statements of Cash Flows
For the Years Ended December 31, 2009 and 2008
2009 2008
---- ----
Operating Activities
Net Income(Loss) $(110,900) $(108,683)
Adjustments to reconcile Net Income
(Loss) To net cash used in operating
activities:
Amortization 16,548 16,548
Accounts receivable 17,951 (3,215)
Accounts Payable and Accrued Liabilities (8,426) (16,246)
Prepaid expenses 2,733 2,263
--------- ---------
Net Cash (Used In) Provided By Operating
Activities 28,806 (650)
--------- ---------
Investing Activities - -
Financing Activities:
Due to Related party (36,497) 121,501
Note Payable (Current (9,207) (8,629)
Capital Contribution 143,820 -
--------- ---------
Net Cash Provided By Financing Activities 98,116 112,872
--------- ---------
Net Change in Cash 16,022 3,539
Cash, Beginning of Period 8,337 4,798
--------- ---------
Cash, End of Period $ 24,359 $ 8,337
========= =========
Supplemental Information
Interest Paid $ 13,072 $ 19,253
========= =========
22
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
-------------------------------------
Harcom Productions, Inc. was incorporated in 1999 in the state of
Oklahoma. The Company's headquarters are located in Tulsa, Oklahoma. In
early 1999, the Company executed a Purchase Agreement to acquire the
operating and intangible assets of an existing production company from a
related party. As such, the Company has since operated as a production
company specializing in on hold messaging for all types of companies.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid investments (those readily
convertible to cash) purchased with original maturity dates of three
months or less to be cash equivalents.
Income Taxes
------------
In 2007, the Company had completed its conversion to a C-Corporation
under the laws of the state of Oklahoma. Income taxes are provided for
the tax effects of transactions reported in the financial statements and
consist of taxes currently due. Income taxes are accounted for in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS No. 109 income taxes are recognized for the following:
i) amount of taxes payable for the current year, and ii) deferred tax
assets and liabilities for the future tax consequences of events that
have been recognized differently in the financial statements than for
tax purposes. Deferred tax assets and liabilities are established using
statutory tax rates and are adjusted for tax rate changes. SFAS 109 also
requires that deferred tax assets be reduced by a valuation allowance if
it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Allowance for Doubtful Accounts
-------------------------------
It is the Company's policy to provide an allowance for doubtful accounts
when it believes there is a potential for non-collectability. As of
December 31, 2009, the Company's allowance for doubtful accounts totaled
$3,960 based upon management's analysis of possible bad debts. This
analysis was based on a two year study of bad debt as it relates to
Receivables.
Revenue Recognition
-------------------
Costs of Goods Sold costs include all direct equipment, amortization,
material, shipping costs and those indirect costs related to contract
performance, such as indirect labor. Selling, general and administrative
costs are charged to expenses as incurred. Changes in contract
23
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
performance, contract conditions, and estimated profitability that may
result in revisions to costs and income are recognized in the period in
which the revisions are determined.
For revenue from product sales, the Company recognizes revenue in
accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition," which superseded SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred; (3) the selling price
is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the
products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period
the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such
time that the Company and the customer jointly determine that the
product has been delivered or no refund will be required. SAB No. 104
incorporates Emerging Issues Task Force ("EITF") No. 00-21, "Multiple-
Deliverable Revenue Arrangements." EITF No. 00-21 addresses accounting
for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect of
implementing EITF No. 00-21 on the Company's financial position and
results of operations was not significant. This issue addresses
determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the
separate units of accounting. EITF No. 00-21 became effective for
revenue arrangements entered into in periods beginning after September
15, 2003.
For those contracts which contain multiple deliverables, management must
first determine whether each service, or deliverable, meets the
separation criteria of EITF No. 00-21. In general, a deliverable (or a
group of deliverables) meets the separation criteria if the deliverable
has standalone value to the customer and if there is objective and
reliable evidence of the fair value of the remaining deliverables in the
arrangement. Each deliverable that meets the separation criteria is
considered a "separate unit of accounting." Management allocates the
total arrangement consideration to each separate unit of accounting
based on the relative fair value of each separate unit of accounting.
The amount of arrangement consideration that is allocated to a unit of
accounting that has already been delivered is limited to the amount that
is not contingent upon the delivery of another separate unit of
accounting. After the arrangement consideration has been allocated to
each separate unit of accounting, management applies the appropriate
24
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
revenue recognition method for each separate unit of accounting as
described previously based on the nature of the arrangement. All
deliverables that do not meet the separation criteria of EITF No. 00-21
are combined into one unit of accounting, and the appropriate revenue
recognition method is applied.
Basis of Presentation
---------------------
In the opinion of management, the accompanying balance sheets and
related interim statements of income, cash flows, and stockholders'
equity include all adjustments, consisting only of normal recurring
items, necessary for their fair presentation in conformity with
accounting principles generally accepted in the United States of America
("U.S. GAAP"). Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, and expenses. Actual results and outcomes
may differ significantly from management's estimates and assumptions.
Interim results are not necessarily indicative of results for a full
year. The information included in this Form 10-Q should be read in
conjunction with information included in the Form 10-K.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported revenues and
expenses during the reporting period. Actual results could differ
significantly from those estimates.
Long-Lived Assets
-----------------
Equipment is stated at cost and depreciated over a useful life of 7
years. Expenditures for maintenance and repairs are charged to
operating expenses as incurred. When equipment is retired or otherwise
disposed of, the cost of the asset and the related accumulated
depreciation are removed from the accounts with the resulting gain or
loss being reflected in results of operations.
Intangible assets include intellectual property rights which were valued
at the date of acquisition by management and amortized over 15 years.
Management assesses the recoverability of equipment and intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from its future
25
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
undiscounted cash flows. If it is determined that an impairment has
occurred, an impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its estimated fair value.
New Accounting Standards
Recent Accounting Pronouncements
---------------------------------
In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on
estimating fair value when market activity has decreased and on
identifying transactions that are not orderly. Additionally, entities
are required to disclose in interim and annual periods the inputs and
valuation techniques used to measure fair value. This FSP is effective
for interim and annual periods ending after June 15, 2009. The Company
does not expect the adoption of FSP FAS 157-4 will have a material
impact on its financial condition or results of operation.
In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not
Active," ("FSP FAS 157-3"), which clarifies application of SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements have not been
issued. The adoption of FSP FAS 157-3 had no impact on the Company's
results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8,
"Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities." This
disclosure-only FSP improves the transparency of transfers of financial
assets and an enterprise's involvement with variable interest entities,
including qualifying special-purpose entities. This FSP is effective
for the first reporting period (interim or annual) ending after December
15, 2008, with earlier application encouraged. The Company adopted this
FSP effective January 1, 2009. The adoption of the FSP had no impact on
the Company's results of operations, financial condition or cash flows.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employers'
Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-
1"). FSP FAS 132(R)-1 requires additional fair value disclosures about
employers' pension and postretirement benefit plan assets consistent
with guidance contained in SFAS 157. Specifically, employers will be
required to disclose information about how investment allocation
decisions are made, the fair value of each major category of plan assets
and information about the inputs and valuation techniques used to
develop the fair value measurements of plan assets. This FSP is
26
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
effective for fiscal years ending after December 15, 2009. The Company
does not expect the adoption of FSP FAS 132(R)-1 will have a material
impact on its financial condition or results of operation.
In September 2008, the FASB issued exposure drafts that eliminate
qualifying special purpose entities from the guidance of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and FASB Interpretation 46 (revised
December 2003), "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51," as well as other modifications. While
the proposed revised pronouncements have not been finalized and the
proposals are subject to further public comment, the Company anticipates
the changes will not have a significant impact on the Company's
financial statements. The changes would be effective March 1, 2010, on
a prospective basis.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP EITF
03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and
therefore need to be included in the computation of earnings per share
under the two-class method as described in FASB Statement of Financial
Accounting Standards No. 128, "Earnings per Share." FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning on
or after December 15, 2008 and earlier adoption is prohibited. We are
not required to adopt FSP EITF 03-6-1; neither do we believe that FSP
EITF 03-6-1 would have material effect on our consolidated financial
position and results of operations if adopted.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-
and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies
how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement of premium revenue and claims
liabilities. This statement also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163 is effective for
fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 162, "The Hierarchy of Generally Accepted Accounting
Principles". SFAS No. 162 sets forth the level of authority to a given
accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative
category will prevail. SFAS No. 162 will become effective 60 days after
27
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA
Professional Standards. SFAS No. 162 has no effect on the Company's
financial position, statements of operations, or cash flows at this
time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133. This standard
requires companies to provide enhanced disclosures about (a) how and why
an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial
performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has
not yet adopted the provisions of SFAS No. 161, but does not expect it
to have a material impact on its consolidated financial position,
results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107
(SAB 107), in developing an estimate of expected term of "plain vanilla"
share options in accordance with SFAS No. 123 (R), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined
estimates of expected term. At the time SAB 107 was issued, the staff
believed that more detailed external information about employee exercise
behavior (e.g., employee exercise patterns by industry and/or other
categories of companies) would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it would not
expect a company to use the simplified method for share option grants
after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available
by December 31, 2007. Accordingly, the staff will continue to accept,
under certain circumstances, the use of the simplified method beyond
December 31, 2007. The Company currently uses the simplified method for
"plain vanilla" share options and warrants, and will assess the impact
of SAB 110 for fiscal year 2009. It is not believed that this will have
an impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements-an amendment of ARB No. 51. This
statement amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling
28
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Before this statement was issued, limited guidance existed
for reporting noncontrolling interests. As a result, considerable
diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as
liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption
is prohibited. The effective date of this statement is the same as that
of the related Statement 141 (revised 2007). The Company will adopt this
Statement beginning March 1, 2009. It is not believed that this will
have an impact on the Company's consolidated financial position, results
of operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in
Statement 141. This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree; (b) recognizes and
measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement applies
prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. An entity may not apply it before that
date. The effective date of this statement is the same as that of the
related FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The Company will adopt this statement beginning
March 1, 2009. It is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Liabilities-Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. This
option is available to all entities. Most of the provisions in FAS 159
are elective; however, an amendment to FAS 115 Accounting for Certain
Investments in Debt and Equity Securities applies to all entities with
available for sale or trading securities. Some requirements apply
differently to entities that do not report net income. SFAS No. 159 is
effective as of the beginning of an entity's first fiscal year that
29
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes
that choice in the first 120 days of that fiscal year and also elects to
apply the provisions of SFAS No. 157 Fair Value Measurements. The
Company will adopt SFAS No. 159 beginning March 1, 2008 and is currently
evaluating the potential impact the adoption of this pronouncement will
have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement
does not require any new fair value measurements. However, for some
entities, the application of this statement will change current
practice. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. Earlier application is encouraged, provided
that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period
within that fiscal year. The Company will adopt this statement March 1,
2008, and it is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
Reclassification
----------------
Certain reclassifications may have been made in prior years' financial
statements to conform to classifications used in the current year.
Note 2 - Intangible Assets
The cost to acquire intangible assets in 1999 has been allocated to the
assets acquired according to the estimated fair values and amortized
over a 15 year life using the straight line method. The Company has
adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby the
Company periodically tests its intangible assets for impairment. On an
annual basis, and when there is reason to suspect that their values have
been diminished or impaired, these assets are tested for impairment, and
write-downs will be included in results from operations. No impairment
was identified for the years ended December 31, 2008 and 2007.
30
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 1 - Summary of Significant Accounting Policies (continued)
The identifiable intangible assets acquired and their carrying values at
December 31, 2009 and 2008 are:
2009 2008
---- ----
Jingles used in on hold messaging $ 248,247 $ 248,247
Less: Accumulated Amortization (176,012) (155,327)
--------- ---------
Net Intangible Asset $ 72,235 $ 92,920
========= =========
Total amortization expense charged to operations for the quarter ended
December 31, 2009 and 2008 was $4,137 and $4,137 respectively.
Note 3 -Long-term Debt
The long-term debt is a note payable to the former owners, dated July 1,
1999 bearing interest at 6.5% per annum, payable on March 1, 2019. The
balance on the note payable net of current portion on December 31, 2008
was $140,867and on December 31, 2009 it was $131,660.
Note 4 - Due to Related Party
Since 2004, the Company's General Manager has advanced funds to the
Company to purchase materials expensed as costs of goods sold as well as
to occasionally meet payroll obligations. These loans were made through
the use of the General Manager's personal credit cards and personal
loans. As such, the amount of interest accrued is dictated by the
interest rate agreed to through the General Manager's credit agreement.
For the years ended December 31, 2009 and 2008, the net effect of unpaid
advances were $164,070 and $192,808 respectively.
Note 5 - Other Commitments and Contingencies
Lease Agreement
---------------
On March 12, 2008, the Company executed a lease agreement. This lease
agreement covers the office space for the Company's headquarters in
Tulsa, Oklahoma includes 3,000 square feet of finished office space
leased for one year beginning on April 1, 2008 and included a deposit of
$1,500. The lease renews annually and the related rental expense was
$15,100 and $24,000, for2009 and 2008 respectively. Due to economic
conditions, on July 1, 2009, the monthly rent was reduced to $1000 per
month.
31
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 6 - Going Concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal
course of business. However the Company has reported net losses of
($108,683) and ($110,099) for the years ended December 31, 2008 and
December 31, 2009 respectively. Without the realization of additional
capital, it would be unlikely for the Company to continue as a going
concern. It is management's plan to complete and execute a business
plan in order to supply the needed cash flow.
Note 7 - Subsequent Events
Harcom Productions, Inc., a public company, merged with U.S. Highland,
Inc. on January 22, 2010 with Harcom as the surviving corporation and
with US Highland, Inc. as the name of the merged corporation.
U.S. Highland, Inc. Harcom Eliminations Consolidated
------------------- ------ ------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 492,766 $ 32,696 $ 425,462
Accounts receivable 116,043 41,292 157,335
Inventory 4,254,582 4,254,582
---------- --------- --------- ----------
Total current assets 4,763,391 73,988 - 4,837,379
---------- --------- --------- ----------
Property and Equipment 364,047 217,878 581,925
Accumulated depreciation (5,168) (217,878) (223,046)
---------- --------- --------- ----------
Net property and equipment 358,879 - - 358,879
---------- --------- --------- ----------
Other Assets:
Intangible assets (net of
amortization) - 72,235 72,235
Investment in subsidiary 143,820 - (143,820) -
Deposits 1,102 1,500 2,602
---------- --------- --------- ----------
Total other assets 144,922 73,735 (143,820) 74,837
---------- --------- --------- ----------
Total Assets $5,267,192 $ 147,723 $(143,820) $5,271,095
========== ========= ========= ==========
32
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 7 - Subsequent Events (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 264,097 $ 17,263 $ 281,360
Due to related parties - 164,070 164,070
Current portion of
long-term debt 8,400 9,207 17,607
Accrued liabilities 2,754 2,754
---------- --------- --------- ----------
Total Current Liabilities 275,251 190,540 - 465,791
---------- --------- --------- ----------
Long-Term Liabilities:
Notes payable (net of
current portion) 26,307 131,660 157,967
Deferred income taxes 8,386 - 8,386
---------- --------- --------- ----------
Total Long-Term Liabilities 34,693 131,660 - 166,353
---------- --------- --------- ----------
Stockholders' Equity:
Common stock 100,000 16,375 116,375
Paid in surplus 4,810,149 242,887 (143,820) 4,909,216
Retained earnings(deficit) 47,099 (433,739) (386,640)
---------- --------- --------- ----------
Total Stockholders' Equity
(Deficit) 4,957,248 (174,477) (143,820) 4,638,951
---------- --------- --------- ----------
Total Liabilities and
Stockholders' Equity
(Deficit) $5,267,192 $147,723 $(143,820) $5,271,095
---------- --------- --------- ----------
U.S. Highland, Inc. Harcom Eliminations Consolidated
------------------- ------ ------------ ------------
Revenue $454,182 $ 230,120 $684,302
Cost of Goods Sold - - (88,984)
-------- --------- -------- --------
Gross Profit 454,182 141,136 - 595,318
-------- --------- -------- --------
Operating Expenses:
General and administrative 269,484 70,241 - 339,725
Racing 102,031 102,031
Research and development 15,852 15,852
Selling 35 35
33
Harcom Productions Inc.
Notes to Financial Statements
For The Year Ended December 31, 2009
Note 7 - Subsequent Events (continued)
Depreciation 5,168 5,168
Medical insurance 834 834
Employee compensation 167,889 167,899
-------- --------- -------- --------
Total Operating Expenses 392,570 238,964 - 631,534
Operating Income (Loss) 61,612 (97,828) (36,216)
-------- --------- -------- --------
Other Income (Expense)
Interest income 92 92
Interest expense (13,072) (13,072)
-------- --------- -------- --------
92 (13,072) - (12,980)
-------- --------- -------- --------
Net Income before Income Taxes 61,704 (110,900) (49,196)
Provision for income taxes (11,140) - (11,140)
-------- --------- -------- --------
Net Income (Loss) $ 50,564 $(110,900) $ - $(60,336)
======== ========= ======== ========
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Changes in Registrant's Certifying Accountant
(a)(1)
(i) On November 6, 2009, the registrant decided to dismiss
Seale and Beers, CPA's as its independent accountants.
(ii) Seale and Beers report on the financial statements for the
past two years ended December 31, 2008, were not subject to an adverse
or qualified opinion or a disclaimer of opinion and were not modified
as to uncertainty, audit scope or accounting principles except that
Seale and Beers' report on the financial statements as of December 31,
2007 and 2008, and each of the years then ended contained explanatory
language that substantial doubt existed about the registrant's ability
to continue as a going concern due to the registrant's net loss and its
working capital deficiencies for each of these years.
(iii)The decision to change accountants was approved by the
registrant's board of directors; and
(iv) During the period from our engagement of Seale and Beers to
the date we dismissed Seale and Beers on November 6, 2009, there were no
disagreements with SWS related to accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Seale and Beers,
would have caused Seale and Beers to make reference to the subject
matter of the disagreement in connection with its report.
(2) On Novenber 6, 2009, the registrant engaged Hood Sutton Robinson
Freeman and CPAs., P.C. as its independent accountants.
(i) Not Applicable
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures:
We maintain disclosure controls and procedures, as defined in Rules 13a-
15(e) and 15d-15(e) under the Exchange Act that are designed to insure
that information required to be disclosed in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and
reported within the periods specified in the Securities and Exchange
Commission's rules and forms and that such information is accumulated
and communicated to our management, including our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), or the persons
performing similar functions, to allow timely decisions regarding
required disclosure.
Under the supervision and with the participation of our CEO and CFO, or
the persons performing similar functions, our management has evaluated
the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this annual report. Based on that
evaluation, our CEO and CFO, or the persons performing similar
functions, concluded that our disclosure controls and procedures were
effective as of December 31, 2009.
35
Management's Annual Report on Internal Control over Financial Reporting:
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Our internal control over
financial reporting is the process designed by and under the supervision
of our CEO and CFO, or the persons performing similar functions, to
provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of our financial statements for external
reporting in accordance with accounting principles generally accepted in
the United States of America. Management has evaluated the
effectiveness of our internal control over financial reporting using the
criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control over Financial Reporting
- Guidance for Smaller Public Companies.
Under the supervision and with the participation of our CEO and CFO, or
the persons performing similar functions, our management has assessed
the effectiveness of our internal control over financial reporting as of
December 31, 2009, and concluded that it is effective.
This annual report does not include an attestation report of the
registrant's registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject
to attestation by the registrant's registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission
that permit the registrant to provide only management's report in this
annual report.
Evaluation of Changes in Internal Control over Financial Reporting:
Under the supervision and with the participation of our CEO and CFO, or
those persons performing similar functions, our management has evaluated
changes in our internal controls over financial reporting that occurred
during the fourth quarter of 2009. Based on that evaluation, our CEO
and CFO, or those persons performing similar functions, did not identify
any change in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Important Considerations:
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
36
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.
ITEM 9B. OTHER INFORMATION
None
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our executive officers and directors and their business experience
follows:
Name and Age Position Term
Bengt Andersson, 65 Chairman January 2010 to present
Mats Malmberg, 41 President January 2010 to present
Managing Director
Steven Moel, 66 CEO January 2010 to present
Chase Bales, 51 COO / January 2010 to present
Director
Damian Riddoch, 36 CFO January 2010 to present
Resumes of Board of Directors and Officers
Mr. Bengt Andersson - Chairman
------------------------------
Mr. Bengt Andersson is the former CEO of Husqvarna, a multi-national
publicly traded conglomerate based in, producing premium products
including utility vehicles, tractors, chainsaws, lawn mowers, pressure
washers, and much more. During his tenure at Husqvarna, Mr. Andersson
is credited with the turnaround of Husqvarna and the implementation of
such venerable motorcycles as the 610 four stroke and an international
race-winning platform.
Below is a summary of Mr. Andersson's experience:
1980 - 1986 Executive VP Electrolux Motor
(1985 - 1987) President Husqvarna Motorcyklar AB
1987 - 1990 President Electrolux Outdoor Products
in North America
1991 - 2001 President Husqvarna AB (Sweden)
2002 - 2006 Executive VP AB Electrolux
2006 - 2008 CEO and President Husqvarna AB
Mr. Mats Malmberg - Managing Director and President of Highland
Mr. Mats Malmberg is the original founder of Highland 13 years ago,
highly successful business entrepreneur, former pro racer, and
inspiration behind the Highland products and brand. Mr. Malmberg's many
successes include several substantial business development deals,
fundraising for Highland over its impressive history, and the
inspiration of many patentable firsts for the powersports industry. Mr.
Malmberg is highly experienced in business development, new product
development, and operations.
38
Mr. Steven A. Moel - Chief Executive Officer
Mr. Steven Moel, MD, JD, and experienced public company CEO, has
diversified experience in operations, business development, and mergers
and acquisitions in a variety of industries. Mr. Moel has experience in
managing growth from inception to mid cap. Mr. Moel brings to US
Highland a wealth of experience and expertise in corporate management of
emerging growth public companies. He also offers public company
experience in a wide breadth of enterprise, and his direct management
experiences include; daily operations, manufacturing, marketing,
financial, mergers, and acquisitions, technology development, and board
of director oversight.
Mr. Moel is in private practice as a transactional attorney and is a
member of the California and American Bar Associations and the American
Inns of Court. He also serves as counsel to many corporations. Dr.
Moel is Senior Business Advisor of DPEC Partners
(Biotech/Hotels/International Real Estate
Development/Agriculture/Winery); Vice-President, Business Development
and Mergers & Acquisitions of Virgilian, LLC
(Nutraceuticals/Agricultural); Chairman of the Board and Chief
Operating Officer of WayBack Granola Company (Granola Manufacturing);
Business Advisor and Vice-President, Finance, of viaMarket Consumer
Products, LLC (Manufacturer of Consumer Products); and Advisory Board
of Mahlia Collection (Jewelry Design/ Manufacturing).
Mr. Chase Bales ? Chairman of the Board of Directors and President
Mr. Bales is currently the President and a member of the board of
directors and the executive committee of US Highland, Inc. Mr. Bales
has been chairman of the board and president of U.S. Highland, Inc. (now
a public company) since May 2009. Mr. Bales has been a director of
Highland Group AB, an engineering development company, since July 2009.
From 1994 to present, Mr. Bales has been the president of Lemon Tree
Financial Group, a financial services entity. Over the past five years,
Mr. Bales has held various board or advisory positions in Mind Over
Matter (engineering development company), Millennial Europe Greentech
(European sales joint venture for Millennial), US Highland , Inc., Wind
and Solar Elements, LLC (joint venture with Lemon Tree for development
of wind power market opportunities for Millennial), Dynamic Solutions
Research, Inc. (51% partial subsidiary of Millennial -- pursues a
defense opportunity for Millennial), and ATK (powersports OEM). Mr.
Bales attended the University of Maryland from 1978-1979 taking
extension services for studies abroad. Mr. Bales attended business and
communications courses at Clackamas College from 1980-1981. From 1981-
1983, Mr. Bales attended classes in business and computer science at the
University of Montana. From 1991-1994, Mr. Bales studied abroad.
Mr. Damian Riddoch ? Member of the Board of Directors and Chief
Financial Officer
Mr. Riddoch currently holds positions at US Highland (since inception in
August, 2008 as a director and member of the executive committee and as
CFO as of January of 2010) and US Highland, Inc. as CFO since December
of 2009 and as Director of Operations since May of 2009. Highland is a
powersports vehicle OEM. From 2006 to 2008, Mr. Riddoch worked for Revv
Automotive AG, a powersports product development company, as a director
39
and member of the executive team. Mr. Riddoch was an independent
management consultant from 2003 to 2005. Prior to 2002 (starting in
1999), Mr. Riddoch was a multi-department manager (process simulation,
estimating, and maintenance) and engineering product manager for GSC
Foundries, an aerospace investment casting and CNC machining provider.
Mr. Riddoch's education includes a Master of Business Administration
Degree (full time program) from the University of Oxford (2003), a
Master of Mechanical Engineering Degree (2002), in addition to his
undergraduate work, which includes a Bachelor of Science Degree in
Manufacturing Engineering from Brigham Young University (1996) and an
Associate of Science Degree in Chemical Engineering from Ricks College
(1991).
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as
amended, an officer, director, or greater-than-10% shareholder of the
registrant must file a Form 4 reporting the acquisition or disposition
of registrant's equity securities with the Securities and Exchange
Commission no later than the end of the second business day after the
day the transaction occurred unless certain exceptions apply.
Transactions not reported on Form 4 must be reported on Form 5 within 45
days after the end of the registrant's fiscal year. Such persons must
also file initial reports of ownership on Form 3 upon becoming an
officer, director, or greater-than-10% shareholder. To our knowledge,
based solely on a review of the copies of these reports furnished to it,
the officers, directors, and greater than 10% beneficial owners complied
with all applicable Section 16(a) filing requirements during 2009.
Code of Ethics Policy
We have adopted a code of ethics as of November 11, 2006 that applies to
our principal executive officer, principal financial officer and
principal accounting officer as well as our employees. Our standards
are in writing. Our complete Code of Ethics has been incorporated by
reference to Exhibit 14 of the Company's report on Form SB-2 which was
filed with the SEC on December 26, 2006. A copy of our code of ethics
is available to any person without charge, upon request. Requests can
be made by sending a self-addressed stamped envelope to the registrant.
The following is a summation of the key points of the Code of Ethics we
adopted:
- Honest and ethical conduct, including ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely, and understandable disclosure reports
and documents that a small business issuer files with, or submits to,
the Commission and in other public communications made by our company;
- Full compliance with applicable government laws, rules and
regulations;
- The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
- Accountability for adherence to the code.
40
Corporate Governance
There have been no changes in any state law or other procedures by which
security holders may recommend nominees to our board of directors. In
addition to having no nominating committee for this purpose, we
currently have no specific audit committee and no audit committee
financial expert. Based on the fact that our current business affairs
are simple, any such committees are excessive and beyond the scope of
our business and needs.
Audit Committee
We do not have an audit committee that is comprised of any independent
director. As a company with less than $1,000,000 in revenue we rely on
our chief financial officer for our audit committee financial expert as
defined in Item 407(d)(5) of Regulation S-K promulgated under the
Securities Act. Our Board of Directors acts as our audit committee. The
board has determined that the relationship of Damian Riddoch as both our
company CFO and our audit committee financial expert is not detrimental
to the registrant. Mr. Riddoch has a complete understanding of GAAP and
financial statements; the ability to assess the general application of
such principles in connection with the accounting for estimates,
accruals and reserves in a fair and impartial manner; has experience
analyzing or evaluating financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable
to or exceed the breadth and complexity of issues that can reasonably be
expected to be raised by the small business issuer's financial
statements; an understanding of internal control over financial
reporting; and an understanding of audit committee functions. Mr.
Riddoch has gained this expertise through his formal education and
experience as our CFO. He has specific experience coordinating the
financials of the registrant with public accountants with respect to the
preparation, auditing or evaluation of the company's financial
statements.
Indemnification
The registrant shall indemnify to the fullest extent permitted by, and
in the manner permissible under the laws of the State of Oklahoma, any
person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by
41
reason of the fact that he is or was a director or officer of the
registrant, or served any other enterprise as director, officer or
employee at the request of the registrant. The board of directors, in
its discretion, shall have the power on behalf of the registrant to
indemnify any person, other than a director or officer, made a party to
any action, suit or proceeding by reason of the fact that he/she is or
was an employee of the registrant.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) is asserted by
such director, officer, or controlling person in connection with any
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE REGISTRANT FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation of our Chief Executive Officer, and the most
highly compensated employees and/or executive officers who served at the
end of the fiscal years December 31, 2008 and 2009, and whose salary and
bonus exceeded $100,000 for the fiscal years ended December 31, 2008 and
2009, for services rendered in all capacities to us.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Other Securities All
Name Annual Restricted Underlying LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus sation Awards SARs Outs sation
Position Year ($) ($) ($) ($) (#) ($) ($)
Shane Harwell 2009 - - - - - - -
CEO 2008 - - - - - - -
Susan Harwell 2009 - - - - - - -
CFO 2008 - - - - - - -
42
DIRECTOR COMPENSATION FOR 2009
The registrant does not compensate its directors for their services as
such. The registrant reimburses the directors for their reasonable out-
of pocket expenses for attending meetings of the board of directors.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The following tabulates holdings of shares of the registrant by each
person who, subject to the above, holds of record or is known by
management to own beneficially more than 5.0% of the common shares and,
in addition, by all directors and officers of the registrant
individually and as a group. Each named beneficial owner has sole
voting and investment power with respect to the shares set forth
opposite his name.
The common shareholdings as of March 15, 2010 are shown below:
Number of
Name and Address Common Shares Percentage
---------------- ------------- ----------
Mats Malmberg 3,735,983 17.4%
Bjork Angen Hulu
Nassjo, Jonkoping
Sweden
Lemon Tree Financial Group, LLC 3,219,300 15.0%
610 West Needles
Bixby, OK 74008
Chase Bales 2,114,341 9.9%
862 E. 171st Street
Glenpool, OK 74008
Boris Claesson 1,311,421 6.1%
Isberga Sateri
SMALANDSSTENAR 333 91
Sweden
Ingemar Brorsson 1,171,725 5.4%
Sallstorp 1
ULLARED 310 60
Sweden
Malfors Promote 1,529,364 7.1%
PL 16, Skarpoborg
Vaxholm SE 185 91
Sweden
Bengt Andersson 244,713 1.1%
Salita delle Ginestre
6900 Lugano
Switzerland
43
Damian Riddoch 0 0.0%
6629 E. 116th Street South
Bixby, OK 74008
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Since 2004, the registrant's former general manager had advanced funds
to the registrant to purchase materials expensed as costs of goods sold
as well as to occasionally meet payroll obligations. These loans were
made through the use of the former general manager's personal credit
cards and personal loans. As such, the amount of interest accrued is
dictated by the interest rate agreed to through the formal general
manager's credit agreement. For the years ended December 31, 2009 and
2008, the net effect of unpaid advances were $164,070 and $192,808
respectively.
On December 21, 2009, the registrant entered into a Transfer and
Assumption of Liabilities Agreement with Shane Harwell, a then officer
and director of the registrant. Pursuant to the Agreement, Harwell
agreed to assume all of the liabilities of the registrant at the time of
Closing. In consideration of the transfer and assumption of liabilities
to Harwell, the registrant issued a convertible debenture with the
principal amount of $225,000 with no interest. The convertible
debenture is convertible into common shares of the registrant at a
conversion price equal to 65% of the 28 day trading average prior to
conversion. The convertible debenture matures on December 21, 2010.
The registrant has the right, with seven (7) business days advance
written notice, to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date.
In contemplation of a merger with U.S. Highland, Inc., an Oklahoma
corporation, the registrant no longer intends to pursue its current
business plan. As a result, the registrant entered into an Asset
Purchase Agreement with Shane Harwell, an officer and director of the
Registrant. Pursuant to the Asset Purchase Agreement dated December 21,
2009, the registrant sold all rights, title and interest to the
Purchased Assets to Mr. Harwell for the consideration of 950,000 common
shares. The 950,000 common shares consisted of 468,750 common shares
directly held by Mr. Harwell, 468,750 common shares acquired by Mr.
Harwell from Susan Harwell, his wife and 12,500 common shares acquired
by Mr. Harwell from Charles Harwell, his father for nominal amounts.
Director Independence
The registrant's board of directors consists of the above disclosed
individuals. None of these individuals are independent as such term is
defined by a national securities exchange or an inter-dealer quotation
system. During the fiscal year ended December 31, 2009, there were no
transactions with related persons other than as described in the section
above entitled "Item 11. Executive Compensation".
44
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees. We incurred aggregate fees and expenses of approximately
$14,000 and $9,000 respectively, from Hood, Sutton Robinson & Co., P.C.
for the 2009 and 2008 fiscal years. Such fees included work completed
for our annual audits and for the review of our financial statements
included in our Forms 10-Q.
Tax Fees. We did not incur any aggregate tax fees and expenses from Hood
Sutton Robinson & CPAs., P.C. for the 2009 and 2008 fiscal years for
professional services rendered for tax compliance, tax advice, and tax
planning.
All Other Fees. We did not incur any other fees from Hood Sutton
Robinson & CPAs., P.C. during fiscal 2009 and 2008.
The board of directors, acting as the Audit Committee considered
whether, and determined that, the auditor's provision of non-audit
services was compatible with maintaining the auditor's independence.
All of the services described above for fiscal years 2009 and 2008 were
approved by the board of directors pursuant to its policies and
procedures. We intend to continue using Hood Sutton Robinson & CPAs.,
P.C. solely for audit and audit-related services, tax consultation and
tax compliance services, and, as needed, for due diligence in
acquisitions.
45
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) List of Financial statements included in Part II hereof
Balance Sheets, December 31, 2009 and 2008
Statements of Operations for the years ended December 31, 2009 and 2008
Statements of Stockholders' Equity for the years ended December 31, 2009
and 2008
Statements of Cash Flows for the years ended December 31, 2009 and 2008
Notes to the Financial Statements
(a)(2) List of Financial Statement schedules included in Part IV hereof:
None.
(a)(3) Exhibits
The following of exhibits are filed with this report:
(31) 302 certification
(32) 906 certification
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this
Report to be signed on its behalf by the undersigned duly authorized
person.
Date: April 1, 2010
US Highland, Inc.
/s/Mats Malmberg
------------------------------
By: Mats Malmberg, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on
behalf of the Corporation and in the capacities and on the dates
indicated.
/s/Mats Malmberg Director April 1, 2010
-------------------
/s/Steven Moel CEO/Director April 1, 2010
------------------- President/Director
/s/Damian Riddoch CFO/Principal Financial
------------------- Officer April 1, 2010
/s/Chase Bales Director April 1, 2010
-------------------
