Item 1. Financial Statements.
US Highland, Inc.
Consolidated Condensed Balance Sheets
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,143
|
|
|
$
|
3,066
|
|
|
Deposits on acquisition
|
|
|
115,000
|
|
|
|
75,000
|
|
|
Total Current Assets
|
|
|
123,143
|
|
|
|
78,066
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
123,143
|
|
|
$
|
78,066
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
347,965
|
|
|
$
|
350,465
|
|
|
Accrued liabilities
|
|
|
734,839
|
|
|
|
704,987
|
|
|
Convertible debentures, net of discounts of $35,240 and $180,716 respectively
|
|
|
810,104
|
|
|
|
768,753
|
|
|
Derivative liabilities
|
|
|
320,360
|
|
|
|
409,948
|
|
|
Loans payable ($0 and $370,000 related parties, respectively)
|
|
|
481,000
|
|
|
|
481,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,694,268
|
|
|
|
2,715,154
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
Series A Preferred stock, 3,500,000 shares authorized, par value $0.01; 3,381,520 shares issued and outstanding
|
|
|
33,815
|
|
|
|
33,815
|
|
|
Series B Preferred stock, 10,000 shares authorized, par value $0.01; 5,000 shares issued and outstanding
|
|
|
50
|
|
|
|
50
|
|
|
Common stock, 1,000,000,000 shares authorized, $0.01 par value; 401,391,827 and 345,450,049 shares and outstanding at March 31, 2018 and December 31, 2017, respectively
|
|
|
4,013,921
|
|
|
|
3,454,502
|
|
|
Treasury stock, at cost – 58,333 shares
|
|
|
(773,500
|
)
|
|
|
(773,500)
|
|
|
Additional paid in capital
|
|
|
69,342,437
|
|
|
|
69,892,158
|
|
|
Accumulated deficit
|
|
|
(75,187,848
|
)
|
|
|
(75,244,112)
|
|
|
Total Stockholders' Deficit
|
|
|
(2,571,125
|
)
|
|
|
(2,637,087)
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
123,143
|
|
|
$
|
78,066
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements
.
US Highland, Inc.
Consolidated
Condensed
Statements of Operations
(Unaudited)
|
|
|
For the Three Months Ended
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
25,423
|
|
|
|
-
|
|
|
Professional fees
|
|
|
37,000
|
|
|
|
27,562
|
|
|
Total operating expenses
|
|
|
62,423
|
|
|
|
27,562
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(62,423
|
)
|
|
|
(27,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(39,742
|
)
|
|
|
(192,249
|
)
|
|
Change in fair value of derivatives
|
|
|
194,734
|
|
|
|
(27,242
|
)
|
|
Loss on convertible notes
|
|
|
(36,305
|
)
|
|
|
-
|
|
|
Total other income (expense)
|
|
|
118,687
|
|
|
|
(219,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
56,264
|
|
|
|
(247,053
|
)
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
56,264
|
|
|
$
|
(247,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share, basic
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
Income (loss) per share, diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
Weighted average shares outstanding, basic
|
|
|
362,573,320
|
|
|
|
315,661,069
|
|
|
Weighted average shares outstanding, diluted
|
|
|
680,091,502
|
|
|
|
315,661,069
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements
.
US Highland, Inc.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
|
|
|
For the Three Months Ended
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
CASH FLOW FROM OPERATING ACTIVITES:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
56,264
|
|
|
$
|
(247,053
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
-
|
|
|
|
165,122
|
|
|
Change in fair value of derivatives
|
|
|
(194,734
|
)
|
|
|
27,242
|
|
|
Loss on convertible debt
|
|
|
36,305
|
|
|
|
-
|
|
|
Debt discount amortization
|
|
|
1,510
|
|
|
|
-
|
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaids expenses and deposits
|
|
|
(40,000
|
)
|
|
|
-
|
|
|
Accounts payable and accrued liabilities
|
|
|
(2,500
|
)
|
|
|
6,472
|
|
|
Accrued liabilities – related party
|
|
|
38,232
|
|
|
|
48,127
|
|
|
Net Cash Used in Operating Activities
|
|
|
(104,923
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible debt
|
|
|
110,000
|
|
|
|
-
|
|
|
Net Cash Provided by Financing Activities
|
|
|
110,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
5,077
|
|
|
|
(90
|
)
|
|
Cash at Beginning of Period
|
|
|
3,066
|
|
|
|
260
|
|
|
Cash at End of Period
|
|
$
|
8,143
|
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements
.
US Highland, Inc.
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended March 31, 2018
(Unaudited)
NOTE 1 - Summary of Business and Basis of Presentation
Organization and Business
US Highland, Inc. was originally formed as a limited liability company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name Harcom Productions, Inc. On January 25, 2010, Articles of Merger were filed with the State of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc. US Highland, Inc. (the "Company") is a recreational power sports Original Equipment Manufacturer ("OEM"), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. During 2017, the Company exited the recreational power sports OEM and leisure activity vehicles markets.
Basis of Presentation
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, USH Distribution Corp., and Powersports Brand Alliance, Inc. All significant intercompany transactions and balances have been eliminated.
The unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Certain prior year amounts have been reclassified to conform to current year presentation.
Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed on April 4, 2018 (the “2017 Annual Report”).
Recently issued accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from operations, and as of March 31, 2018 current liabilities exceed current assets by $2,571,125 and the Company has an accumulated deficit of $75,187,848. The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, internally generated working capital and monetization of intellectual property assets. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company's development and marketing efforts.
Note 2 -
Deposits on acquisition
On March 8, 2018, the Company entered into a share exchange agreement with TruFood Provisions Co (TruFood). Per the agreement, the Company will exchange 65% of the issued and outstanding stocks of US Highland, and cash, for 100% of the equity of TruFood. It is expected that all other debt related to the operation of TruFood will be retired at or prior to the closing date. As of March 31, 2018, the Company had deposited $115,000 related to this acquisition.
NOTE 3 - Loans Payable
|
Loans payable consist of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
a)
|
On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly.
|
|
$
|
27,000
|
|
|
$
|
27,000
|
|
|
b)
|
On February 27, 2014, and March 19, 2015, the Company received advances from a director of $6,000, and $10,200, respectively. During the year ended December 31, 2015, the Company repaid $13,200. The advances are unsecured, due on demand and bears interest at 1% per annum compounded and calculated monthly.
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
c)
|
On September 18, 2014, May 29, 2015, July 3, 2015, December 2, 2015, and January 4, 2016, the Company entered into unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $35,000, $4,000, $5,000, $22,000, and $45,000, respectively. The loans bear interest at 8% per annum compounded annually and are due 1 year after the date of issuance. On May 31, 2017, the Company executed a conversion addendum for each of the original loans for $22,000 and $45,000. The terms per the addendum allow the note holder to convert any portion of the principal and accrued interest into shares of common stock at $0.0001 per share.
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
d)
|
On December 4, 2014, January 29, 2015, August 12, 2015, August 21, 2015, September 1, 2015, September 15, 2015, November 13, 2015, and December 23, 2015, the Company issued unsecured notes payable of $20,000, $20,000, $20,000, $25,000, $40,000, $25,000, $30,000 and $10,000, respectively, to a significant shareholder. The notes bear interest at an annual rate of 8% per annum, are uncollateralized, and due 1 year after the date of issuance.
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
|
f)
|
On September 2, 2016 the Company issued an unsecured note payable of $100,000 respectively to a significant shareholder. The note bears interest at an annual rate of 5% per annum, is uncollateralized, and due 1 year after the date of issuance.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
g)
|
On September 2, 2016 the Company issued an unsecured note payable of $50,000 respectively to a significant shareholder. The note bears interest at an annual rate of 5% per annum, is uncollateralized, and due 1 year after the date of issuance.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
481,000
|
|
|
$
|
481,000
|
|
|
|
Less Short-Term Portion
|
|
|
(481,000
|
)
|
|
|
(481,000
|
)
|
|
|
Long Term Loans Payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Above notes are past due as of the issuance of these financial statements.
NOTE 4 - Convertible Debentures
|
a)
|
On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company’s common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. The note is secured against substantially all of the assets of the Company.
|
|
|
|
|
|
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
|
|
|
|
|
|
On December 31, 2015, the Company and the note holder agreed to extend the maturity date to December 31, 2016. Interest shall accrue at 12% per annum but may be reduced to 8% for any period of time in which the interest is paid in cash and not accrued. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different, and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a gain on extinguishment of debt of $492,585. The Company also recognized the fair value of the embedded conversion feature of $16,507,415 as a derivative liability and reduced the value of the convertible loan to $nil.
|
|
|
|
|
|
During the year ended December 31, 2015, the Company recorded total accretion of $500,000. At March 31, 2018 and December 31, 2017, the carrying value of the note was $500,000.
|
|
b)
|
On February 11, 2016, the Company entered into two convertible promissory notes for a total of $275,000, pursuant to which the Company received proceeds of $237,500, net of an original issue discount of $25,000 and legal fees of $12,500. The notes are convertible at a price equal to 60% of the lowest trading price of the Company's common stock for the 20 prior trading days, bearing interest at 8% per annum and due on February 11, 2017. Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liabilities of $308,492 resulted in a full discount to the note payable of $250,000 and the recognition of $59,492 as additional interest expense.
|
|
|
|
|
|
During the year ended December 31, 2017, the entire balance of the discounts and costs were recognized in full. At March 31, 2018 and December 31, 2017, the carrying value of the notes was $275,000 and $275,000 with unamortized discount of $nil and $0, respectively. These notes are past due as of the issuance of these financial statements, as a result the interest rate increased to 24%.
|
|
|
|
|
c)
|
On May 17, 2016, the Company entered into a convertible promissory note for $55,000, pursuant to which the Company received proceeds of $48,000, net of an original issue discount of $5,000 and legal fees of $2,000. The notes are convertible at a price equal to 55% of the lowest trading price of the Company's common stock for the 20 prior trading days, bearing interest at 8% per annum and due on May 17, 2017. Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liabilities of $95,047 resulted in a full discount to the note payable of $50,000 and the recognition of $45,047 as additional interest expense.
|
|
|
|
|
|
At March 31, 2018 and December 31, 2017, the carrying value of the notes was $35,400 and $59,400 with unamortized discount of $nil and $0, respectively. These notes are past due as of the issuance of these financial statements, as a result the interest rate increased to 24%.
|
|
|
|
|
d)
|
On October 30, 2017, the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds of $25,000. The notes are convertible at any time after September 13, 2018 at a mutually agreed upon conversion price, bearing interest rate at 10% per annum and due on October 30, 2019. Due to these provisions, the embedded conversion options does not currently qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
|
|
|
|
|
|
At March 31, 2018 and December 31, 2017, the carrying value of the note was $25,000 and $25,000, respectively.
|
|
e)
|
On November 18, 2017, the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds of $25,000. The notes are convertible at any time after September 13, 2018 at a mutually agree upon conversion price, bearing interest rate at 10% per annum and due on November 30, 2019. Due to these provisions, the embedded conversion options does not currently quality for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
|
|
|
|
|
|
During January and February 2018, the Company received an additional $75,000 under the same terms as the preciously issued convertible promissory note.
|
|
|
|
|
|
At March 31, 2018 and December 31, 2017, the carrying value of the notes was $100,000 and $25,000, respectively.
|
|
|
|
|
f)
|
On March 16, 2018, the Company entered into a convertible promissory note for $36,750, pursuant to which the Company received proceeds of $35,000, net of an original issue discount of fees of $1,750. The note is convertible at a price equal to 55% of the lowest trading price of the Company's common stock for the 20 prior trading days, bearing interest at 8% per annum and due on March 15, 2019. Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liabilities of $71,305 resulted in a full discount to the note payable of $36,750 and the recognition of $36,305 as a loss on the issuance of a convertible note.
|
NOTE 5 - Derivative Liabilities
The embedded conversion options of the Company’s convertible debentures described in Note 3 contain conversion features that qualify for embedded derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
Balance at the beginning of the period
|
|
$
|
409,948
|
|
|
$
|
402,881
|
|
|
Addition of new derivative liabilities
|
|
|
71,305
|
|
|
|
-
|
|
|
Change in fair value of embedded conversion option
|
|
|
(127,052
|
)
|
|
|
44,084
|
|
|
Derecognition of derivatives upon settlement of convertible notes
|
|
|
(33,841
|
)
|
|
|
(37,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
320,360
|
|
|
$
|
409,948
|
|
The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black- Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As, required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
|
|
|
Expected
Volatility
|
|
|
Risk-free
Interest Rate
|
|
|
Expected
Dividend Yield
|
|
|
Expected Life
(in years)
|
|
|
At December 31, 2017
|
|
|
335
|
%
|
|
|
1.39
|
%
|
|
|
0
|
%
|
|
0.25 – 2.50
|
|
|
At March 31, 2018
|
|
|
140.0% – 344.5
|
%
|
|
|
1.73%-2.07
|
%
|
|
|
0
|
%
|
|
0.25 - .95
|
|
NOTE 6 - Preferred Stock
|
a)
|
On September 30, 2015, the Company designated 3,500,000 shares of the Company’s 3,550,000 authorized “blank check” preferred stock as Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock shall, with respect to dividend rights, rights on liquidation, winding up and dissolution, rank senior to (i) all classes of common stock of the Company and (ii) any class or series of capital stock of the Company hereafter created (unless, with the consent of the holders of Series A Convertible Preferred Stock). The holders of the Series A Preferred Stock shall not entitled to receive any dividends and shall have the voting equivalency of 10 shares of common stock. Each holder of Series A Preferred Stock shall have the right at any time or from time to time from and after the day immediately following the date the Series A Preferred Stock is first issued, to convert each share of Series A Preferred Stock into 10 fully-paid and non-assessable share of common stock, par value $0.01 per share, of the Company. In connection with any conversion hereunder, each holder of Series A Convertible Preferred Stock if such conversion would cause such holder or any of its assignees to beneficially own more than 4.99% of the common stock of the Company.
|
|
|
|
|
b)
|
On September 30, 2015, the Company issued an aggregate of 3,381,520 shares of Series A Convertible Preferred Stock at a fair value of $12,849,776 to settle convertible and promissory notes in the amount of $1,487,000 and accrued interest of $203,760. The Company recorded a gain on settlement of debt of $1,495,529.
|
|
|
|
|
c)
|
On November 20, 2015, the Company designated 10,000 shares of the Company’s 3,550,000 authorized “blank check” preferred stock as Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock shall, with respect to dividend rights, rights on liquidation, winding up and dissolution, rank senior to (i) all classes of common stock of the Company and (ii) any class or series of capital stock of the Company hereafter created (unless, with the consent of the holders of Series B Convertible Preferred Stock). The holders of the Series B Preferred Stock shall not entitled to receive any dividends and shall have the voting equivalency of 4,000 shares of common stock. Each holder of Series B Preferred Stock shall have the right at any time or from time to time from and after the day immediately following the date the Series B Preferred Stock is first issued, to convert each share of Series B Preferred Stock into 4,000 fully-paid and non-assessable share of common stock, par value $0.01 per share, of the Company. In connection with any conversion hereunder, each holder of Series B Convertible Preferred Stock if such conversion occurred would cause such holder or any of its assignees to beneficially own more than 4.99% of the common stock of the Company.
|
NOTE 7 - Common Stock
During the three months ended March 31, 2018, the Company issued 55,941,778 shares of common stock to settle $35,159 of principal and $8,380 of accrued interest on its convertible notes.
NOTE 8 -
Subsequent Events
In accordance with ASC 855-140,
Subsequent Events,
the Company analyzed its operations subsequent to March 31, 2018, through the date the financial statements were available to be issued, and has determined that there are no material subsequent events to disclose in these financial statements other then the following.
Subsequent to March 31, 2018, the Company issued 34,590,084 shares of common stock to settle $11,798 of principal and $4,805 of accrued interest on a convertible note.
On May 1, 2018, the Company entered into a Letter of Intent (“LOI”) regarding the proposed acquisition which is anticipated to be by a newly formed Canadian acquisition subsidiary of UHLN, of the assets of Supreme Sweets, Inc.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “continue” or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.
These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources”. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws. Unless stated otherwise, terms such as the “Company,” “US Highland,” “we,” “us,” “our,” and similar terms shall refer to US Highland, Inc., an Oklahoma corporation, and its subsidiaries.
Plan 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. (the "Company") was a recreational power sports Original Equipment Manufacturer ("OEM"), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. During 2017, the Company exited the recreational power sports OEM and leisure activity vehicles markets.
On March 8, 2018, the Company entered the fast-casual restaurant space through its share-exchange acquisition of TruFood Provision Co., a healthy dining establishment that plans to expand across the south east. TruFood Provision Co. is a healthy dining pure play, and positions the Company in the rapidly growing healthy eating space.
Results of Operations
The three-months ended March 31, 2018 compared to the three-months ended March 31, 2017
Revenues
The Company had no revenues.
Operating Expenses
General and administrative expenses increased from $0 for the three months ended March 31, 2017 to $25,423 for the three months ended March 31, 2018. Licenses and fees, transfer agent fees and consulting expense all contributed to the increase.
Professional fees increased from $27,562 for the three months ended March 31, 2017 to $37,000 for the three months ended March 31, 2018. Professional fees consist of audit, legal and investor relation expenses.
Net Loss
For the three months ended March 31, 2018, we had net income of $56,264 compared to a net loss of $247,053 for the three months ended March 31, 2017. During the three months ended March 31, 2018 we recognized a gain in the fair value of derivatives of $194,734, which resulted in net income for the period. In the prior period we had a loss on the fair value of derivatives of $27,242. In addition, during the three months ended March 31, 2018 interest expense was $39,742, compared to $192,249 for the three months ended March 31, 2017 and we had a loss on the issuance of a new convertible note of $36,305.
Liquidity and Capital Resources
Initially, because the Company borrowed funds on a convertible basis, the Company’s cash position was positive. Overall, however, the Company, experienced a decreased cash position due to the decrease in ongoing business operations, because all operating expenses were paid out of cash on hand. In addition, the Company experienced a decrease in non-cash resources in connection the conversion of promissory notes.
See
Note 3 to the Company’s Financial Statements.
On March 20, 2018, we entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Pikeminnow Funding LLC, as buyer (the “Buyer”), pursuant to which Buyer will acquire up to $3,500,000 of the Company’s common stock, on the terms and subject to the conditions set forth in the Equity Purchase Agreement. The Equity Purchase Agreement contains customary representations and warranties, covenants, agreements and indemnities.
Going Concern
The Company has no revenues and has incurred net losses. In addition, at March 31, 2018, there was an accumulated deficit of $75,187,848. These factors raise substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or available from external sources such as debt or equity financings, or other potential sources. The inability to generate cash flow from operations or to raise capital from external sources will force the Company to substantially curtail and cease operations, therefore, having a material adverse effect on its business. Furthermore, there can be no assurance that any funds, if available, will possess attractive terms or not have a significant dilutive effect on the Company's existing stockholders.
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Item 4. Controls and Procedures.
Management’s Report on Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “'Exchange Act'”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2018 in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.