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EX-32 - 906 CERTIFICATIONS - US Highland, Inc.ushighland10q3q10ex32.txt
EX-31 - 302 CERTIFICATIONS - US Highland, Inc.ushighland10q3q10ex31.txt

                    SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C. 20549

                             FORM 10-Q

[x]  Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For Quarterly Period Ended September 30, 2010
-OR-
 [ ]  Transition Report Pursuant to Section 13 or 15(d) of the
Securities And Exchange Act of 1934 for the transaction period from
_______ to ________

           Commission File Number       333-139685

				   US HIGHLAND, INC.
		(Exact name of registrant as specified in its charter)

        OKLAHOMA                              26-4144571
(State or other jurisdiction of    	 (IRS Employer Identification No.)
incorporation or organization)


17424 South Union Avenue, Mounds, OK           74047
(Address of principal executive offices)     (Zip Code)

                        918-467-2231
    (Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (section 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).   Yes [ ]   No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company as defined by Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]        Non-accelerated filed [ ]
Accelerated filer   [ ]            Smaller reporting company [x]

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]

The number of shares outstanding of the registrant's common stock, par
value $0.01 per share, as of September 30, 2010: 21,462,500 shares.


2 US Highland, Inc. FORM 10-Q For the quarterly period ended September 30, 2010 INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosure About Market Risk 19 Item 4. Controls and Procedures 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings 21 Item 1A. Risk Factors 21 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21 Item 3. Defaults upon Senior Securities 21 Item 4. Removed and Reserved 21 Item 5. Other Information 21 Item 6. Exhibits 21 SIGNATURES
3 PART I Item I - Financial Statements US Highland, Inc. Balance Sheet September 30, 2010 and 2009 9/30/10 9/30/09 --------- --------- (Unaudited) (Unaudited) ASSETS Current Assets: Cash $ - $ 45,864 Accounts Receivable 171,324 120,932 Inventory 3,881,522 - Prepaid Assets 42,000 - ---------- ---------- 4,094,846 166,796 ---------- ---------- Property and Equipment: Vehicle 57,420 4,450 Furniture and Fixtures 42,923 43,297 Tooling 352,976 - Production Equipment 4,806 - Leasehold Improvements 204,143 - Accumulated Depreciation (9,044) - ---------- ---------- 653,224 47,747 ---------- ---------- Other Assets: Long-term Notes Receivable 250,030 - Goodwill 164,820 - Accumulated Amortization (8,241) - Deposits 2,005 1,102 ---------- ---------- 406,614 1,102 ---------- ---------- Total Assets $5,156,684 $ 215,645 ========== ========== LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts Payable $ 483,067 $ 227,233 Current Portion of Long-Term Debt 8,870 - Escrow Account 25,000 600 Accrued Liabilities 121,663 1,783 ---------- ---------- Total Current Liabilities 638,600 229,616 ---------- ---------- Long-term Liabilities: Notes Payable 25,090 - Long-Term Debt 19,915 36,670 ---------- ---------- Total Long Term Debt 28,785 36,670 ---------- ----------
4 Deferred Income Taxes 8,386 - ---------- ---------- Total Liabilities 691,991 266,286 ---------- ---------- Stockholders' Equity: Common Stock, 100 million shares Authorized, par $0.01, 21,449,560 Issued and outstanding 1,000,000 Issued for 2009 214,496 10,000 Paid in Capital 5,182,960 115,245 Retained Earnings (48,763) (175,886) Treasury Stock (884,000) - ---------- ---------- Total Stockholders' Equity 4,464,693 (50,641) ---------- ---------- Total Liabilities and Stockholders Equity $5,156,684 $ 215,645 ========== ========== The accompanying notes are an integral part of these financial statements
5 US Highland Inc. Statements of Operations and Retained Earnings For the Periods Ended September 30, 2010 and 2009 Three Months Ended Nine Months Ended 09/30/10 09/30/09 09/30/10 09/30/09 -------- -------- -------- -------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue: Sales $ 151,650 $ 85,511 $1,408,280 $ 160,346 Cost of Goods Sold (93,166) (896) (345,810) (896) --------- --------- ---------- --------- Gross Profit 58,484 84,615 1,062,470 159,450 --------- --------- ---------- --------- Operating Expenses: General and Administrative 441,485 83,204 812,090 189,319 Racing 4,935 56,782 6,051 101,312 Research and Development 83 460 151 15,849 Selling 55,301 27,621 255,087 27,621 Depreciation 3,876 - 3,876 - Amortization 8,241 - 8,241 - --------- --------- ---------- --------- Total Operating Expenses 513,921 168,067 1,085,496 334,101 --------- --------- ---------- --------- Operating Income (455,437) (83,452) (23,026) (174,651) --------- --------- ---------- --------- Other Income (Expense): Sale of Asset 21,500 - 21,500 - Cost of Asset Sold (25,090) - (25,090) - Salvage and Rental Income 5,435 - 5,434 - Interest Income 9 15 185 20 Interest Expense (2,369) (814) (3,504) (1,255) --------- --------- ---------- --------- Total Other Income (Expense) (515) (799) (1,474) (1,235) --------- --------- ---------- --------- Income before Provision For Income Taxes (455,952) (84,251) (24,500) (175,886) Provision for Income Taxes - - - - --------- --------- ---------- --------- Net Income (455,952) (84,251) (24,500) (175,886) Retained Earnings, Beginning of Period 407,189 (91,635) 48,487 - --------- --------- ---------- --------- Retained Earnings, End of Period $ (48,763) $(175,886) 23,987 (175,886) ========= ========= ========== ========= The accompanying notes are an integral part of these financial statements
6 US Highland Inc. Statement of Cash Flows For the Periods Ended September 30, 2010 and 2009 09/30/10 09/30/09 -------- -------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) $(455,952) $ (84,251) Adjustments to reconcile Net Income (Loss) To net cash provided by (used in) Operating activities Depreciation 3,876 - Amortization 8,241 - (Increase) decrease in accounts Receivable (136,263) (25,135) (Increase) decrease in inventories (340,180) - (Increase) decrease in prepaid assets (42,000) - Increase (decrease) in accounts payable 355,587 159,604 ---------- --------- Net Cash Provided by (Used in) Operating Activities (606,691) 50,218 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment purchases (10,601) (47,747) ---------- --------- Net Cash Provided by (Used in) Investing activities (10,601) (47,747) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 750 - Proceeds from Lone-term debt - 36,670 Proceeds from related party notes 25,090 - Repayment of long-term debt (1,791) - Adjustment to Paid In Capital 1,152,678 - ---------- ---------- Net Cash Provided by (Used In) Financing Activities 1,176,727 36,670 ---------- ---------- Net Increase (Decrease) In Cash and Cash Equivalents 559,435 39,141 ---------- ---------- Cash and Cash Equivalents Beginning of Period 392,766 - Cash and Cash Equivalents End of Period $ - $ 45,864 ========== ========== Supplemental Disclosures: Interest Paid $ 2,369 $ 814 The accompanying notes are an integral part of these financial statements
7 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies Organization and Nature of Operations US Highland, Inc. was originally formed as a Limited Liability Company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name Harcom Productions, Inc. On January 25, 2010, Articles of Merger were filed with the state of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc. US Highland, Inc. is a recreational powersports OEM, developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. Cash and Cash Equivalents The Company considers highly liquid investments (those readily convertible to cash) purchased with original maturity dates of three months or less to be cash equivalents. Income Taxes In 2007 The Company had completed its conversion to a C-Corporation under the laws of the state of Oklahoma. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS No. 109 income taxes are recognized for the following: i) amount of taxes payable for the current year, and ii) deferred tax assets and liabilities for the future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using statutory tax rates and are adjusted for tax rate changes. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Allowance for Doubtful Accounts It is the Company's policy to provide an allowance for doubtful accounts when it believes there is a potential for non-collectability. At present US Highland, Inc. management does not feel that there are any doubtful accounts. Revenue Recognition Costs of Goods Sold costs include all direct equipment, amortization, material, shipping costs and those indirect costs related to contract performance, such as indirect labor. Selling, general and administrative costs are charged to expenses as incurred. Changes in
8 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies (continued) contract performance, contract conditions, and estimated profitability that may result in revisions to costs and income are recognized in the period in which the revisions are determined. For revenue from product sales, the Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which superseded SAB No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. SAB No. 104 incorporates Emerging Issues Task Force ("EITF") No. 00-21, "Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing EITF No. 00-21 on the Company's financial position and results of operations was not significant. This issue addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting. EITF No. 00-21 became effective for revenue arrangements entered into in periods beginning after September 15, 2003. For those contracts which contain multiple deliverables, management must first determine whether each service, or deliverable, meets the separation criteria of EITF No. 00-21. In general, a deliverable (or a group of deliverables) meets the separation criteria if the deliverable has standalone value to the customer and if there is objective and reliable evidence of the fair value of the remaining deliverables in the arrangement. Each deliverable that meets the separation criteria is considered a "separate unit of accounting." Management allocates the total arrangement consideration to each separate unit of accounting based on the relative fair value of each separate unit of accounting. The amount of arrangement consideration that is allocated to a unit of accounting that has already been delivered is limited to the amount that is not contingent upon the delivery of another separate unit of accounting. After the arrangement consideration has been allocated to each separate unit of accounting, management applies the appropriate
9 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies (continued) revenue recognition method for each separate unit of accounting as described previously based on the nature of the arrangement. All deliverables that do not meet the separation criteria of EITF No. 00-21 are combined into one unit of accounting, and the appropriate revenue recognition method is applied. Basis of Presentation In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows, and stockholders' equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ significantly from management's estimates and assumptions. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Form 10-K. Use of Estimates The preparation of financial statements in conformity with generally accepted principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Long-Lived Assets Equipment is stated at cost and depreciated over a useful life of 7 years. Expenditures for maintenance and repairs are charged to operating expenses as incurred. When equipment is retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in results of operations. Management assesses the recoverability of equipment and intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from its future undiscounted cash flows. If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value.
10 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies (continued) New Accounting Standards Recent Accounting Pronouncements In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on estimating fair value when market activity has decreased and on identifying transactions that are not orderly. Additionally, entities are required to disclose in interim and annual periods the inputs and valuation techniques used to measure fair value. This FSP is effective for interim and annual periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS 157-4 will have a material impact on its financial condition or results of operation. In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active," ("FSP FAS 157-3"), which clarifies application of SFAS 157 in a market that is not active. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption of FSP FAS 157-3 had no impact on the Company's results of operations, financial condition or cash flows. In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities." This disclosure-only FSP improves the transparency of transfers of financial assets and an enterprise's involvement with variable interest entities, including qualifying special-purpose entities. This FSP is effective for the first reporting period (interim or annual) ending after December 15, 2008, with earlier application encouraged. The Company adopted this FSP effective January 1, 2009. The adoption of the FSP had no impact on the Company's results of operations, financial condition or cash flows. In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)- 1"). FSP FAS 132(R)-1 requires additional fair value disclosures about employers' pension and postretirement benefit plan assets consistent with guidance contained in SFAS 157. Specifically, employers will be required to disclose information about how investment allocation decisions are made, the fair value of each major category of plan assets and information about the inputs and valuation techniques used to develop the fair value measurements of plan assets. This FSP is effective for fiscal years ending after December 15, 2009. The Company does not expect the adoption of FSP FAS 132(R)-1 will have a material impact on its financial condition or results of operation.
11 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies (continued) In September 2008, the FASB issued exposure drafts that eliminate qualifying special purpose entities from the guidance of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and FASB Interpretation 46 (revised December 2003), "Consolidation of Variable Interest Entities- an interpretation of ARB No. 51," as well as other modifications. While the proposed revised pronouncements have not been finalized and the proposals are subject to further public comment, the Company anticipates the changes will not have a significant impact on the Company's financial statements. The changes would be effective March 1, 2010, on a prospective basis. In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share." FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position and results of operations if adopted. In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts- and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company's financial position, statements of operations, or cash flows at this time. In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company's financial position, statements of operations, or cash flows at this time.
12 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies (continued) In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows. In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company's election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for "plain vanilla" share options and warrants, and will assess the impact of SAB 110 for fiscal year 2009. It is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting non-controlling interests. As a result, considerable diversity in practice existed. So-called minority interests were
13 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies (continued) reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement improves comparability by eliminating that diversity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement 141 (revised 2007). The Company will adopt this Statement beginning March 1, 2009. It is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations'. This Statement replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirements in Statement 141. This Statement establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this statement is the same as that of the related FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. The Company will adopt this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities-Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value
14 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 1 - Summary of Significant Accounting Policies (continued) Measurements. The Company will adopt SFAS No. 159 beginning March 1, 2008 and is currently evaluating the potential impact the adoption of this pronouncement will have on its consolidated financial statements. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company will adopt this statement March 1, 2008, and it is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. Reclassification Certain reclassifications may have been made in prior years' financial statements to conform to classifications used in the current year. Note 2 - Long-term Debt The Company does not have any long-term debt. Note 3 - Other Commitments and Contingencies Lease Agreement Current manufacturing operations include 18,000 square feet for general manufacturing, CNC and manual machining, and final assembly, 5,000 square feet for welding, painting, and fabrication operations, and 10,000 square feet for administration (lease purchase at $8,500 per month). Note 4 - Significant Cash and/or Stock Based Acquisitions of Assets In three separate transactions involving cash and/or stock, the Company acquired $400,000 in finished goods inventory from RSGA International, Inc., $1 million in components and finished goods inventory from ATK of Oklahoma, Inc., and intellectual property from the Highland Group AB (the Swedish company which caused US Highland, Inc.
15 US Highland, Inc. Notes to Financial Statements For The Three and Nine Months Ended September 30, 2010 (Unaudited) Note 4 - Significant Cash and/or Stock Based Acquisitions of Assets (continued) to be formed and from which US Highland, Inc. acquired most of its assets, its brand name, some of the members of the US Highland management team, and the US Highland product line). Note 5 - Subsequent Event The Company experienced the sudden loss of the COO, CFO and President on July 10th 2010 in a plane crash. The COO and CFO have been replaced and the appropriate SEC filings have been made to reflect these changes.
16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Overview The following Management's Discussion and Analysis is intended to help the reader understand our company. It is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes. Forward-Looking Statements Historical results and trends should not be taken as an indication of future operations. Management's statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "may," "should," "could," "believe," "expect," "anticipate," "estimate," "project," "prospects," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company include, but are not limited to: changes in economic conditions, legislative/regulatory changes, the availability of capital, interest rates, and the competitive environment. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business; including additional factors that could materially affect the Company's financial results, are included herein and in the Company's other filings with the Securities and Exchange Commission. The following discussion and analysis should be read in conjunction with the financial statements and notes to financial statements included elsewhere in this quarterly report on Form 10-Q. This report and the financial statements and notes to financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to future economic performance and our current beliefs regarding revenues we might earn if we are successful in implementing our business strategies. The Company does not undertake to update, revise or correct any forward-looking statements. LIQUIDITY AND CAPITAL RESOURCES ------------------------------ OVERVIEW Our principal sources of liquidity are existing cash, cash generated by our operations, and our ability to borrow cash or obtain equity investment when needed from a number of related parties.
17 Our principal uses of liquidity are funding growth opportunities and paying the costs and expenses associated with our operations. The Company experienced significant growth in assets during the first quarter of 2010, in a combination of components inventory, finished goods inventory, and intellectual property. In April 2010, the Company received approximately $762,404 in a private offering, substantially increasing the Company's cash reserves. The credit of the officers and directors for guaranteeing any loan necessary is extremely strong. The company has not established any lines of credit with any banks. In the event a supplier or lender requires additional credit to obtain small equipment or other business supplies, our officers and directors are willing to extend their credit to accomplish the purchase. OPERATING ACTIVITIES -------------------- During the third quarter of 2010, the Company used $166,669 of cash equivalent, including various acquisitions of assets in partial cash and partial stock transactions, in operating activities. In the opinion of management, it is not useful to provide an analysis or comparison of the results of prior years as the Company has materially changed its business plan and operations from prior years to recreational powersports from operations unrelated to recreational powersports, resulting in entirely new financial performance characteristics. The Company's first quarter revenues are much better than management expectations, primarily derived from engineering development and business development activities. The Company will continue to develop revenue from similar activities and plans on supplementing engineering development and business development revenues with revenues from manufacturing operations later this year. Results of Operations for the three months ended September 30, 2010 and 2009 Revenues: During this quarter, the Company has total revenues of $151,650. Historically through its roots with the Swedish company the Highland Group AB, the Company has generated substantial revenues from engineering development and business development activities. These activities are likely to continue to remain a significant source of revenues for the Company, in addition to revenues generated from manufacturing and sales of the Company's motorcycles, quads, and engines, planned for formal production startup later this year after the production ramp up is complete.
18 Cost of Goods Sold: Cost of goods sold for the period was $93,166. As the Company completes its production ramp activities and commences selling its manufactured products, cost of goods sold are projected to increase substantially, primarily proportionately to revenues from manufacturing operations. Net Loss: Net loss for the period is $(455,952), which is higher than expected for the period. The Company expects to generate most of its 2010 revenues near year end after production startup. Operating Expenses: Operating expenses for the period total $513,921. Operating expenses are anticipated to increase at a much slower rate than cost of goods sold proportional to revenues from manufacturing operations. Results of Operations for the nine months ended September 30, 2010 and 2009 Revenues: During this quarter, the Company has total revenues of $1,408,280. Historically through its roots with the Swedish company the Highland Group AB, the Company has generated substantial revenues from engineering development and business development activities. These activities are likely to continue to remain a significant source of revenues for the Company, in addition to revenues generated from manufacturing and sales of the Company's motorcycles, quads, and engines, planned for formal production startup later this year after the production ramp up is complete.
19 Cost of Goods Sold: Cost of goods sold for the period was $345,810. As the Company completes its production ramp activities and commences selling its manufactured products, cost of goods sold are projected to increase substantially, primarily proportionately to revenues from manufacturing operations. Net Loss: Net loss for the period is $(455,952), which is higher than expected for the period. The Company expects to generate most of its 2010 revenues near year end after production startup. Operating Expenses: Operating expenses for the period total $1,085,496. Operating expenses are anticipated to increase at a much slower rate than cost of goods sold proportional to revenues from manufacturing operations. Comparison of Balance Sheet for September, 30, 2010 and 2009 as it pertains to Capital and Liquidity. Cash and Equivalents: At the end of the period, the Company had $392,766 in cash. The Company also has 3,881,522 in inventory. Accounts Receivable: The Company has total receivables of $171,324. Total Current Liabilities: The Company has total current liabilities of $638,600. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable for a smaller reporting company ITEM 4: CONTROLS AND PROCEDURES During the three months ended September 30, 2010, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2010. Based on this evaluation, our chief executive officer and chief principal financial officer have concluded such controls and procedures to be effective as of June 30, 2010 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed,
20 summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
21 PART II ITEM 1. Legal Proceedings None ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds None ITEM 3. Defaults Upon Senior Securities: None ITEM 4 (Removed and Reserved) ITEM 5 Other Information: None Item 6 Exhibits 31 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /s/Bengt Andersson ------------------------- Bengt Andersson Chief Executive Officer Dated: June 10, 2011 /s/Christer Wagenius ------------------------- Christer Wagenius Chief Financial Officer Dated: June 10, 2011