SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (G) OF THE SECURITIES ACT OF 1934
HIGHLAND HOLDINGS INTERNATIONAL, INC.
-------------------------------------
(Name of Small Business Issuer in its charter)
DELAWARE 98-0179679
- -------- ----------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
6227 Highway 393
Crestview, Florida 32539
- ------------------ -----
(Address of principal executive offices (Zip Code)
Issuer's Telephone Number (905) 812-9088
Issuer's Fax Number (905) 812-3870
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
SECURITIES TO BE REGISTERED PURSUANT OT SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 par value 20,000,000
PREFERRED STOCK $.001 par value 5,000,000
(Title of Class)
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL. INC.
TABLE OF CONTENTS
Part Item Description of Item Page
- ---- ---- ------------------- ----
Table of Contents 2
Part I Item 1 Description of Business 3
Business of the Issuer 3
Item 2 Management's Discussion and Analysis 4
and results of Operations
Forward Looking Statements 4-5
Liquidity and Capital Resources 5
Reports to Security Holders 8
Impact of the Year 2000 on Information Systems 8
Item 3 Description of Property 8
Item 4 Security Ownership of Certain Beneficial Owners 9
and Management
Item 5 Directors, Executive Officers, Promoters and
Control Persons 9
Directors and Executive Officers 9
Business Experience 9-10
Item 6 Executive Compensation 10
Item 7 Certain Relationships and Related Transactions 10
Item 8 Description of Securities 10
Common Stock 10
Preferred Stock 10
Part II Item 1 Market Price of and Dividends on Registrant's 11
Common Equity and Related Shareholder matters
Market Information 11
Holders 11
Dividends 11
Item 2 Legal Proceedings 11
Item 3 Changes in and Disagreements with Accountants 11
Item 4 Recent Sales of Unregistered Securities 12
Item 5 Indemnification of Directors and Officers 12
Part F/S Item 1 Financial Statements
Audited Statement December 31, 1998 12-32
Audited Statement December 31, 1997 33-55
Part III Item 1 Index to Exhibits 56
Articles and Amendments 57-61
Bylaws 62-71
Specimen Certificate 72
Signature Page 73
2
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Highland Holdings International, Inc. is involved in the business of the mining
of mineral deposits in Honduras. The Company has been in the mining business
since it acquired the rights three years ago. No minerals have as yet been
removed from the property and no sales have taken place. The property at the
time of acquisition was in the a state of disrepair and had not been active
since prior to World War II during which the property was actively mined by a
German group. The Company is a development stage company currently in the
exploration stage and there is no assurance that any of its prospects or
properties contain a commercially viable ore body (reserves) until further
geologic exploration work is done, and a final feasibility study based upon such
work is included.
The Company also leased properties in Brazil and Arizona, USA but has not
continued any exploration on these properties during the last year and does not
foresee any resumption at the present time.
The Company was incorporated under the laws of the State of Delaware on March
23rd 1992 under the name Northern Medical, Inc. Through a filing in the office
of the Secretary of State of Delaware on October 30, 1992 the Company amended
its Articles of Incorporation to change its name to Normed Industries, Inc. .
The certificate of incorporation was again amended on January 17, 1995
increasing the number of shares of common stock to 20,000,000 and 5,000,000
shares of preferred stock. On March 28, 1995 the Company amended its certificate
of incorporation with a change of name to Highland Resources, Inc. and on
November 3, 1997 the Company amended its certificate of incorporation to change
its name to Highland Holdings International, Inc.
Mineral Rights Owned
- --------------------
On October 2, 1997 Highland Holdings International, Inc. (HHII) purchased 75% of
the mineral rights of three mineral properties held by Derena-Desarrollo de
Recursos Naturales S. de R.L. a Honduran based company. These properties were
transferred during 1999 to Highland Resources Honduras, S.A. On December 18,
1998, Highland Holdings International acquired an additional 20% of the mineral
rights of the three properties, bringing its total holdings up to 95%.
The three mineral properties are a) the Zapote (Rey del Oro Mine) with 4 mining
concessions; b) the Jimingula based metal exploration claim and, c) The Derena
gold exploration claim. At the Zapote mining concessions, high-grade gold
near-surface mineralization has been sampled in mine working indicating at least
five god deposits with a potential resource of 1,000,000 troy oz. Other areas on
the concession block may also contain deposits but as yet are not sampled at
depth.
During the past year the Company has done exploration work at the Zapote 1 with
the construction of a shop and warehouse at Zapote 1. In addition, extensive
sampling (1,100 plus samples) of known gold bearing veins. The clarity of low
cyanide is acceptable for the extraction of gold. It is also considered
operationally efficient to extract gold. The company purchased an air
compressor, jack hammers, generators and located for purchase a backhoe,
portable crusher and other required equipment.
3
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDING DECEMBER 31, 1997 AND 1998 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 AND THE PERIOD FROM INCEPTION (March
23, 1992) T0 SEPTEMBER 30, 1999.
Development Stage Activities
The Company has been a development stage enterprise from its inception March 23,
1992 to September 30, 1999. The Company develops and manufactures innovative
specialty chemical products and applications in the plastics and coasting
industries. To date, the Company is a development Stage Company involved in the
application and development of a gold mining concession in Honduras.
During this period management devoted the majority of its efforts to
obtaining, locating, exploring and conducting feasibility studies of properties
in Brazil, Arizona, and Honduras. As of December 31, 1998 and September 30,
1999, the Company has narrowed its search to its ownership in a mining
concession in Honduras and written off Arizona and Brazil as not being
commercially viable to enter into production. During this time period, the
Company was in the process of pursuing and finding a management team to begin
the process of: completing its feasibility studies, conducting geologic
exploration and analysis of test borings, completing the documentation for and
selling initial shares through the Company's private placements; and completing
the documentation for the Company's filing of its form 10-SB to become a
reporting Company. The Company's management and investments from stockholders
and borrowings from related third parties funded these activities. The Company
has not yet generated sufficient revenues during its limited operating history
to fund its ongoing operating expenses, repay outstanding indebtedness or fund
its mining exploration activities. For the period of inception, March 23, 1992
to September 30, 1999, the Company completed its feasibility study of thee
Honduras mining concession and has decided that its best prospects lie with
focusing its resources on brining this mine into production. There can be no
assurance that production will develop. Further investments into exploration and
development as defined in the Company's operating plan will significantly reduce
the cost of preparation, processing and production by enabling the Company to
operate without reliance upon outside vendors and suppliers.
During this developmental period, the Company has been financed through
loans that were subsequently converted to shares of common stock aggregating
$265,741 and through the sale of shares of common stock aggregating $990,000.
Results of operations for the year ending December 31, 1998 as compared to
the year ending December 31, 1997.
For the years ending December 31, 1997 and December 31, 1998, the Company
had no income from the production of mineral bearing ores.
The Company's general and administrative costs aggregated approximately
$393, 348 for the year ended December 31, 1998 as compared to $898, 614 for the
year ended December 31, 1997 representing a decrease of $505,266. The level of
overall spending for general and administrative expenses remains essentially
level from the previous years spending which includes office expense of $58,764;
consulting fees of $89,431; rent of $12,413; payroll of $96,521; mining
expenditures of $142,936; travel of $14,909; professional fees of $11,795 and a
gain from foreign exchange of $33,421.
4
<PAGE>
Results of Operations for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998.
For the nine months ended September 30, 1999, the Company has not generated
any revenue from the production and sale of minerals.
The Company's general and administrative costs aggregated approximately
$85, 640 for the nine months ended September 30, 1999 as compared to $352,878
for the nine months ended September 30, 1998 representing a decrease of
$267,238. This decrease represents focusing available moneys on exploration and
development of the Honduras concession during the nine months ended September
30, 1999. Monies were spent as follows: mining and exploration $55,140;
professional fees of $6,596; and office expenses of $20, 109 and a gain on
foreign exchange of $3,795.
Liquidity and Capital Reserves.
The Company's cash balance at December 31, 1998 and September 30, 1999 was
$20,198 and $900 respectively. Working capital at December 31, 1998 and
September 30, 1999 was positive at December 31, 1998 by $485 and negative at
September 30, 1999 by $15,255 respectively. For the year ended December 31,
1998, the Company continued to be funded in part by the sale of shares of common
stock aggregating $342,000, a gain on foreign exchange aggregating $7,681 and
the proceeds from the sale of a convertible bond aggregating $22,365. For the
nine months ending September 30, 1999, the Company was funded in part by the
sale of commons stock aggregating $136,365, and an increase in accounts payable
of $12,768. For the year ended December 31, 1998, the Company expended cash as
follows: purchase of office equipment aggregating $1,636. For the nine months
ended September 30, 1999, the Company expended cash as follows: $89,814 for
further exploration of the Company's mineral properties.
Management believes that it will be required to raise funds in addition to
funds provided by personal resources aggregating $300,000 through private
placements. The proceeds of these private placements will be sufficient to
satisfy Management's objectives of purchasing equipment for office, production
and product development of $100,000; conduct ore testing amounting to $30,000;
pay consultants $80,000; salaries of $30,000; telephone of $10,000; travel
expenses of $20,000 and production expenses of $30,000.
Income Tax. As of December 31, 1998 and September 30, 1999, the Company had
a tax loss carry forward of $1,271,870 and $1,358,266 respectively. The
Company's ability to utilize its tax credit carry-forwards in future years will
be subject to an annual limitation pursuant to the "Change in Ownership Rules"
under Section 382 of the Internal Revenue Code of 1986, as amended. However, any
annual limitation is not expected to have a material adverse effect on the
Company's ability to utilize its tax credit carry-forwards.
The Company believes that its available cash and cash from management
contributions will be sufficient to satisfy its funding needs for the day to day
mining operations for at least the next twelve months. Thereafter if cash
generated from the mining operations is insufficient to satisfy the Company's
working capital and capital expenditure requirements, the Company may be
required to sell additional equity or debt securities or obtain additional
credit facilities. There can be no assurance that such financing, if required,
will be available on satisfactory terms, if at all.
5
<PAGE>
MARKETING PLANS
The market for the sale of gold is well defined and the Company intends to
review each of the potential ways in which gold is commercially sold at such
time as the feasibility reports show the quality and the content of the reserve
on each property.
Background
- ----------
Honduran Mining Law.
- --------------------
Mineral rights in Honduras belong to the federal government, and the exploration
and mining of mineral is governed by the Mining Code of 1968. Exploration and
mining rights are granted by the Ministry of Mines and Hydrocarbons on a
priority-of-request basis as permits and concessions. Honduran citizens, foreign
citizens, Honduran companies and foreign companies with legal representation in
Honduras call all request exploration permits and mining concessions. All
metallic minerals are open to exploration on a permit basis, however gas and oil
are regulated by a separate code of law. Mining and exploration activities are
considered a public utility and thus take priority over the private exploration
of land. The development of mineral properties is divided into three phases
under the Honduras Mining Code.
Reconnaissance.
All lands, both state and private are open for prospecting except areas
covered by valid permits and concessions or withdrawn reserves. Permission
to conduct renaissance prospecting on private land can be obtained through
the Ministry of Mines. Highland Holdings International, Inc. has obtained
the valid permits and concessions.
Exploration Permits
Exploration permits are granted for periods of 2 to 4 years and can be
renewed once for a period of 2 to 4 years so that the total period of
validity does not exceed 6 years. All land is open to staking except areas
specifically withdrawn as ecological, mineral or archaeological reserves.
Permits are granted for a minimum area of 400 hectares to a maximum of
50,000 hectares. No company or individual can hold more than 200,000
hectares of permit area. The exploration permit is granted in the form of a
contract with the Ministry of Mines based on an exploration plan and budget
submitted by the requesting company. Non-fulfilment of the exploration plan
can result in cancellation of the balance remaining on the time of the
permit. The Company presently holds exploration permits for a total of
18,200 hectares.
Mining Concessions.
Mining concessions are granted for a period of 40 years with the right to a
20 year extension. Concessions are granted for a minimum area of 100
hectares and a maximum area of 400 hectares. No company can hold more than
20,000 hectares of mining concession area in Honduras. However, mining
concessions and installations are considered real property and cn be
mortgaged as such. Highland Holdings International, Inc. wholly owned
subsidiary, Highland Resources, Honduras S.A. (HRH) presently holds 4
mining concessions. No mortgage or other encumbrance is presently in
effect.
6
<PAGE>
Importation of Mining Equipment
- -------------------------------
Mining equipment not manufactured in Honduras or Central America can be imported
by holders of a valid mining concession without payment of import duties. The
importation of equipment has been discussed with both Highland's Honduran
attorney and the Chief Geologist at the Ministry of Mines. The paper work
required to approve the importation of equipment can take up to two months.
Environmental Regulations.
- --------------------------
A General Law of the Environment was decreed in 1993. This law requires the
drafting of an environmental impact report for any mining project and the
licensing of any potentially-polluting industrial activity. The issuance of a
mining concession is not dependent on obtaining the environmental license.
Fulfilment of environmental requirements must be done within 18 months following
the issuance of a concession. The Company will not have any difficulty in
meeting the requirements which are not considered rigorous.
Taxes.
- ------
Mining concessions are subject to a small fee on the areas of concessions. This
tax is now being revised due to the devaluation of the Honduran currency, the
Lempira. The Federal Government also collects a one percent to two percent
royalty of production. As an incentive for mining, both the royalty and the area
fee are forgiven during the firs five years of operation. According to
Highland's Honduran attorney the maximum income tax rate is forty percent. The
Company has not paid any taxes to date and does not expect to pay any for the
next year.
REGULATIONS
The Company is subject to many laws and regulations both in the United States
and internationally as its commences production. The Company does not anticipate
any difficulty in the future in complying with all applicable Laws and
Regulations in the performance of its operations. The Company cannot predict the
impact of possible changes in response to future legislation, rules or
governmental requirements including regulations which may affect the ability of
the company, as well as others in the industry, to develop and market products.
However, we do not presently believe that existing applicable legislative and
administrative rules and regulations will have a significant impact on
operations.
COMPETITION
The Company is in an industry the selling price of which is controlled by buyers
in London and New York. The Company is under-capitalized to compete against the
major gold producing companies which are located around the world. The Company
will be dependent upon external forces in the sale of its products. The present
selling price of gold, slightly under US$300 per oz., is a price at which the
Company is capable of competing. There can be no assurance that the Company can
develop superior or more cost effective products than its competitors, or that
it can successfully market its product.
ECONOMIC RISKS
Local, National and international economic conditions may have a substantial
adverse effect on the efforts of the Company. A downturn in the United States
economy could reduce the amount of disposable cash that individuals are willing
to pay for products made with gold or the amount they are willing to purchase.
7
<PAGE>
EMPLOYEES
At the present time the Company employs a total of 14 mining personnel at the
Honduran properties. There are no employees in the United States.
RESEARCH AND DEVELOPMENT
During the first three years of operation, the total cost of research and
development was $1,145,010.
PATENTS AND TRADEMARKS
The Company does not own any Patents or Trademarks and does not have any
intention at the present time to file any Patent or Trademark Applications.
REPORTS TO SECURITY HOLDERS
Prior to filing this Form 10-SB, the Company has not been required to deliver
annual reports. However, once we become a reporting company, we shall deliver
annual reports to securities holders as required by the Securities Exchange Act
of 1934 (the "Exchange Act"), as amended. Also we shall deliver annual reports
to securities holders as required by the rules or regulations of any exchange
upon which our shares may be traded. If we are not required to deliver annual
reports, it is not likely that we will go to the expense of producing and
delivering such reports. If we are required to deliver annual reports, such
reports will contain audited financial statements as required.
Prior to the filing of this Form 10-SB, we have not filed reports with the
Securities and Exchange Commission (the "Commission"). Once we become a
reporting company, management anticipates that Forms 3, 4, 5, 10-K-SB, 10-Q-SB,
8-Kand Schedules 13D along with appropriate proxy materials will have to be
filed as they come due. If we issue additional shares, then we may file
additional registration statements for those shares.
IMPACT OF Y2K ON COMPANY
The Year 2000 issue arising out of computer programs is not expected to affect
the Company, its mining operations or its plans for sales. We intend to timely
update our accounting and other systems which are determined to be affected by
Year 2000 by purchasing Year 2000 compliant equipment including software or
hardware available from retail vendors at reasonable cost. We have not yet
contacted any of our vendors to determine their status as to the Y2K compliance.
The Company does not know the status of Honduras as a country and the effect of
Y2K on the Country.
ITEM 3. DESCRIPTION OF PROPERTY
The three mineral properties are a) the Zapote (Rey del Oro Mine) with 4 mining
concessions; b) the Jimingula based metal exploration claim and, c) The Derena
gold exploration claim. At the Zapote mining concessions, high-grade gold
near-surface mineralization has been sampled in mine working indicating at least
five god deposits with a potential resource of 1,000,000 troy oz. Other areas on
the concession block may also contain deposits but as yet are not sampled at
depth.
8
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Shares by (a) each person known to be the
beneficial owner of more than 5% of the Company's outstanding Common Shares, (b)
the Directors of the Company and (c) the Directors and Officers as a group.
NAME NUMBER OF SHARES OWNED PERCENTAGE OF
(COMMON STOCK) SHARES ISSUED
John Demoleas 9,174,285 62.473%
Directors and Officers as a group 9,523,285 64.850%
Beneficial owners of more than 5% of the Company's outstanding shares are:
John P. Demoleas 9,174,285 62.473%
Cede & Co. 3,205,972 21.831%
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Directors, Executive Officers, Promoters and Control Persons are listed
below:
Name Age Position
- ---- --- --------
John P. Demoleas 40 Chairman, President & CEO
George Nadas 46 Secretary/Treasurer and Director
Charlie Stetler 50 Director
Annette Reichmann 60 Director
The biographies of the Directors and Officers are set forth below. All Directors
hold office until the next annual shareholder's meeting or until their death,
resignation, retirement or until their successors have been elected and
qualified. Vacancies in the existing Board are filled by a majority vote of the
remaining Directors.
Mr. John P. Demoleas. Chairman, President and CEO.
Since 1988 Mr. Demoleas has served as Executive Director of St. Peter's
Foundation, which implements corporate development programs and manages
investment and endowment funds. In 1996 he established The Foundation for
Healthy Children, a non-profit corporation, and serves as its President and CEO.
Mr. Demoleas holds joint MPH-MBA degrees from Columbia University.
Mr. George Nadas, Vice President and Director
Mr. Nadas a founding partner in Reiter & Nadas Chartered Accountants has a
strong financial background which includes Controller of VasCATH,, Inc. a
medical products manufacturer, and V.P. Finance of Safety House of Canada, Ltd.
He earned his Bachelors degree in mathematics with Honors from the University of
Waterloo, Ontario, Canada.
9
<PAGE>
Mr.Charles Frederick Stetler, Director
Mr. Stetler has over 25 years experience in assessing geological potential and
is responsible for financial and technical planning, property evaluation and
acquisition. Before joining Highland, Mr. Stetler served as a mine geologist and
director of exploration at several international mining and exploration
operations. He earned his Bachelors degree in geology at the University of
California at Los Angeles.
Ms. Annette Reichmann, Director
Ms. Reichmann, founder of A/R Management Services, has employed her business
skills since 1977 to assist management of small businesses in the areas of tax
planning, and management. She earned her degree in Business Administration at
Dinkreve Institute in Amsterdam.
ITEM 6. EXECUTIVE COMPENSATION
No cash compensation has been paid to any executive.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Director, Officer, Promoter or Control Person is, or has been in debt to the
Company.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, $.001 par
value of which on the 30th of November 1999, 14,684,897 shares were issued and
outstanding. The company is authorized to issue 5,000,000 shares of Preferred
Stock $.001 par value of which on the 30th of November 1999 no shares were
issued and outstanding. There are 288 shareholders of common stock as of
11/30/99.
Shareholders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors without any preference. Holders of
Common Stock are entitled to one vote per share. Cumulative voting is not
allowed and thus holders of more than 50% of the shares voting for Directors can
elect all Directors. The holders of Common Stock have no preference rights to
purchase new issues of the securities of the Company.
Dividends may be paid if, and when, declared by the Board of Directors. All
shares are non-assessable and fully paid.
Upon liquidation or dissolution of the company, holders of Common Stock are
entitled to receive pro rata, either in cash or in kind, all of the assets of
the Company after payment of the debts. There are no redemption, conversion or
pre-emptive rights attached to the Common Stock.
Transfer Agent and Registrar
- ----------------------------------
The Transfer and Registrar of the Company is:
Liberty Transfer
Attn: Jean M. Lewin
Box 558 Huntington, New York 11743
191 New York Ave. Huntington New York
10
<PAGE>
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Until recently the Company's Common Stock was traded over-the-counter on the
Bulletin Board by the National Association of Securities Dealers (NASD) under
the Symbol - "HHII". At present it is traded by the National Quotation Service
(Pink Sheets) under the Symbol HHIIe.
There are 4,044,279 shares of free trading shares of the Company's Common Stock.
As of November 20, 1999 the High and Low Bids for the securities during the
preceding year were
December 30, 1998 Bid $.04 Ask $.05
November 20, 1999 Bid $.1475 Ask $.15
These prices reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
As of November 30, 1999 there were 288 shareholders of the Company's Common
Stock. The Company has not declared or paid any dividends on its stock, and does
not anticipate declaring any dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
The Company is a defendant in a litigation by Douglas Furth of Aurora, Ohio for
breach of Contract as a result of a consulting contract entered into on August
26, 1996. The agreement relates to Mr. Furth performing certain growth, public
relations and expansion of the Company's shareholder base. Pursuant to the
Agreement the Company was to issue 50,000 shares of common stock upon signing
the agreement, pay a monthly retainer of 10,000 unrestricted shares of common
stock and pay a bonus of 50,000 unrestricted shares of common stock when the
Company's stock traded at an average closing price of $3.00 per shares for a
period of 14 consecutive days; pay a bonus of 50,000 shares of unrestricted
shares of common stock when the Company's common stock is trading at an average
closing price of $4.00 per share for 14 consecutive days; pay a bonus of 100,000
unrestricted shares of common stock when the Company's stock trades at an
average closing price of $5.00 per share for a period of 14 consecutive days;
pay a bonus of 100,000 unrestricted shares of common stock when the Company's
stock trades at an average closing price of $6.00 per share for a period of 14
days and pay a bonus of 100,000 unrestricted shares of common stock when the
Company's stock trades at an average closing price of $7.00 per share for a
period of 14 consecutive days. Mr. Furth is seeking damages in the amount of
$75,000 plus interest and punitive damages of $1,000,000. In the opinion of
management, the Company's exposure for loss is estimated to be 1,572 shares of
common stock.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None
11
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On September 9, 1999 the Company issued 726,666 shares of common stock to John
Demoleas in consideration for services valued at $14,533 or $0.02 per share.
As of April 9, 1999 the Company sold 7,300,000 shares of common stock to John
Demoleas for an aggregate consideration of $104,000 or $0.014 per share.
As of September 30, 1999, the Company sold 300,000 shares of common stock to
George Nadas for an aggregate consideration of $10,000 or $0.03 per share.
On September 30, 1999, the Company issued and placed into escrow 600,000 shares
of common stock to A-Z Professional Consultants, Inc. (a Utah corporation) to be
issued for the performance of financial consulting services and valued at $.05
per share. A total of 300,000 of these shares have been delivered with the
balance upon completion of the consulting services.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has provided in its amended by-laws for the indemnification of
Director, Officer, agent or employee as to liabilities.
The Company has not purchased insurance as of this date to cover any
indemnification.
PART F/S
The Independent Auditor's Report and the Financial Statements for the year
ending December 31, 1998 are included in addition to the Independent Auditor's
Report and Financial Statements for the year ending December 31, 1997.
12
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC
FINANCIAL STATEMENTS
December 31, 1998
(with accountants report thereon)
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(973) 790-8775
To The Board of Directors and Shareholders
of Highland Holdings International, Inc. (a development stage company)
I have audited the accompanying consolidated balance sheet of Highland
Holdings International, Inc. (a development stage company) as of December 31,
1998 and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1997 and 1998. These
consolidated financial statements are the responsibility of the company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Highland
Holdings International, Inc. (a development stage company) as of December 31,
1998 and the related consolidated statements of operations, cash flows and
shareholders' equity for the years ending December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Highland Holdings International, Inc. (a development stage
company) will continue as a going concern. As more fully described in Note 2,
the Company has incurred operating losses since inception and requires
additional capital to continue operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans as to these matters are described in Note 2. The financial statements do
not include any adjustments to reflect the possible effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the possible inability of Highland Holdings
International, Inc. (a development stage company) to continue as a going
concern.
Thomas P. Monahan, CPA
October 15, 1999
Paterson, New Jersey
13
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEET
September 30,
December 31, 1999
1998 Unaudited
Assets ----------- -----------
<S> <C> <C>
Current assets
Cash $ 20,198 $ 900
Prepaid expenses 6,039
-----------
Total current assets 26,237 900
Capital assets 4,614 2,837
Mineral properties 301,500 391,314
Other assets
Security deposit
Organization costs
Total other assets
Total assets $ 332,351 $ 395,051
----------- -----------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 3,387 $ 16,155
Convertible promissory note $ 22,365
-----------
Total liabilities 25,752 16,155
Stockholders equity
Preferred stock - $.001 par value, authorized 5,000,000 shares
The number of shares outstanding at December 31, 1998 and
September 30, 1999 was -0- and -0- respectively
Capital stock - $.001 par value, authorized 20,000,000 shares. The
number of shares outstanding at December 31, 1998 and September
30, 1999 was 5,684,898 and 14,240,453 respectively 5,685 14,241
Additional paid in capital 1,565,112 1,730,602
Accumulated deficit during development stage (1,271,879) (1,358,266)
Accumulated other comprehensive income:
Currency translation 7,681 (7,681)
----------- -----------
Total stockholders equity 306,599 378,896
----------- -----------
Total liabilities and stockholders equity $ 332,351 $ 395,051
----------- -----------
See accompanying notes to financial statements.
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTRNATIONAL, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year For the Year For the Nine For the Nine For the period
Ended ended months ended months ended from Inception
December 31 December 31 September 30 September 30, March 23, 1992
1997 1998 1998 1998 To September 30, 1999
Unaudited Unaudited Unaudited
---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Income $ -0- $ -0- $ -0- $ -0- $ -0-
Cost of goods sold -0- -0- -0- -0- -0-
Gross profit -0- -0- -0- -0- -0-
Operations:
General and
Administration 898,614 393,348 352,878 85,640 1,698,326
Depreciation and
Amortization 1,386 1,370 900 737 1,826
----------- ----------- ----------- ----------- ----------
Total Expense 900,000 394,718 (353,778) 86,377 1,700,152
----------- ----------- ----------- ----------- ----------
Loss from continuing
operations (900,000) (394,718) (353,778) (86,377) (1,700,152)
Discontinued Mining
operations
Loss from operations
of discontinued mining operations (24,956) (24,956) (24,956)
Loss on disposal of
mining assets (206,158) (206,158) (206,158)
Write off of debt due
To Brazilian parties 603,000 603,000 603,000
----------- ----------- -----------
Net profit from
Discontinued operations 371,886 371,886 371,886
----------- ----------- -----------
Net Profit(Loss)
from operations $ (900,000) $ (22,832) $ 18,108 $ (86,387) (1,358,266)
----------- ----------- ----------- ----------- ----------
Net loss per share-
Basic $ (0.14) $ (0.01) $ 0.01 $ 0.01 $ (0.14)
----------- ----------- ----------- ----------- ----------
Weighted average
number of shares outstanding 3,912,693 2,134,123 2,300,055 9,962,675 9,962,675
See accompanying notes to financial statements
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTRNATIONAL, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period
For the Year For the Year For the Nine For the Nine from Inception
Ended ended months ended months ended March 23, 1992
December 31 December 31 September 30 September 30, to September 30,
1997 1998 1998 1998 1999
Unaudited Unaudited Unaudited
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
New Profit (loss) $ (900,000) $ (15,152) $ 47,766 $ (86,387) $(1,358,266)
Depreciation & amortization 1,386 1,370 900 737 1,826
Non-cash transactions 192,560 70,180 30,000 432,421
Discontinued operations (603,000) (401,544)
Prepaid expenses (4,691) (1,347) (1,347) 6,039
Accounts Payable 22,700 (19,313) 12,350 12,678 16,155
----------- ----------- ----------- ----------- -----------
TOTAL CASH FLOWS
FROM OPERATRIONS $ (688,046) $ (574,942) $ (341,875) $ (36,843) $ (887,864)
CASH FLOWS FROM
FINANCING ACTIVITIES
Notes payable $ 603,000 $ $ $ $
Proceeds of convertible note 22,365 (22,365)
Gain on Foreign Exchange 7,681 (7,681) (7,681)
Sale of stock net of offering
Costs 630,000 342,000 321,065 136,365 1,284,741
----------- ----------- ----------- ----------- -----------
TOTAL CASH FLOWS FROM
FINANCING ACTIVITIES $ 1,233,000 $ 372,046 $ 328,746 $ 106,319 1,284,741
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Security Deposit $ (2,853) $ 2,853 $ 2,853 $ $
Office Equipment 18,824 (1,636) (1,636) 1,040 (4,663)
Mineral properties 507,658 206,158 (89,814) (391,314)
----------- ----------- ----------- ----------- -----------
TOTAL CASH FLOWS FROM
INVESTING ACTIVITIES $ (329,335) $ 207,375 $ 1,217 $ 88,774 $ (395,977)
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE(DECREASE)
IN CASH 15,619 4,479 (11,912) (19,298) 900
CASH BALANCE
BEGINNING OF PERIOD 100 15,719 15,719 20,198
----------- ----------- ----------- ----------- -----------
CASH BALANCE
END OF PERIOD $ 15,719 $ 20,198 $ 3,807 $ 900 $ 900
See accompanying notes to financial statements
16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Additional Deficit
Common Common paid in accumulated during
Date Stock Stock capital development stage Total
- ---- ----- ----- ------- ----------------- -----
<S> <C> <C> <C> <C> <C>
03-13-1992 100 $ 2,000 $ 2,000
Net loss (1,800) (1,800)
----------- ----------- ----------- ----------- -----------
12-31-1994 100 $ 2,000 (1,800) 200
Forward split 1,750 to 1 1,750,000 1,750 (1,750) -0-
Issuance of stock for acquisition 7,182,315 7,182 286,015 293,197
03-13-1995 27,000
Net loss (30,050) (30,050)
----------- ----------- ----------- ----------- -----------
12-31-1995 8,932,315 8,932 313,265 (31,850) 290,347
Issuance of shares for forgiveness
of loans 2,111,996 2,112 145,264 147,376
Issuance of shares for acquisition 624,000 624 624
Net loss (317,197) (317,197)
----------- ----------- ----------- ----------- -----------
12-31-1996 11,668,311 $ 11,668 $ 458,529 $ 349,047) $ 121,150
Reflects 30-1 reverse split 388,944 $ 389 $ 469,808 $ (349,047) $ 121,150
Issuance of shares for acquisition 2,000,000 2,000 18,000 20,000
Issuance of shares for consulting
Services 1,316,000 1,310 11,790 13,100
Sale of shares 300,000 300 14,700 15,000
Sale of shares 1,800,000 1,800 88,200 90,000
Issuance of shares for acquisition 250,000 250 31,250 31,500
Issuance of shares to Advisory Board 30,000 30 1,470 1,500
Sale of shares 525,000 525 524,475 525,000
Net loss (900,000) (900,000)
----------- ----------- ----------- ----------- -----------
12-31-1997 6,603,944 6,604 1,159,693 (1,249,047) (82,750)
Issuance in consideration for
Consulting fees 280,000 280 28,220 8,500
Issuance of shares for conversion
of debt 491,341 491 47,509 48,000
Sale of shares through private
placement 4,233,333 4,233 151,767 156,000
----------- ----------- ----------- -----------
Subtotal 11,608,618 11,608 1,387,189
----------- ----------- -----------
Reverse split 7 to 1
on July 1, 1998 1,655,000 1,655 1,397,142
Issuance of shares for conversion
of debt 533,131 533 47,467 48,000
Issuance of shares in consideration
For consulting fees 340,000 340 33,660 34,000
Sale of shares through private
Placement 3,156,767 3,157 86,843 90,000
Foreign currency translation 7,681
Net profit (22,832) (15,152)
----------- ----------- ----------- ----------- -----------
12-31-1998 5,684,898 $ 5,685 $ 1,572,793 $(1,271,879) $ 306,599
Unaudited
Gain on foreign exchange (7,681)
Sale of shares through private
placement 7,600,000 7,600 106,400 114,000
Issuance of shares for conversion
of debt 355,555 356 22,009 22,365
Issuance of shares for consulting
fees 600,000 600 29,400 30,000
Net loss (86,387) (86,387)
----------- ----------- ----------- ----------- -----------
09-30-1999 14,240,453 $ 14,241 $ 1,722,921 $ 1,358,266) $ 378,896
----------- ----------- ----------- ----------- -----------
See accompanying notes to financial statement.
17
</TABLE>
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Note 1 - Organization of Company and Issuance of Common Stock
-------------------------------------------------------------
a. Creation of the Company
Highland Holdings International, Inc. (the "Company") was formed on March
23, 1992 under the laws of the State of Delaware as Northern Medical, Inc. with
10,000,000 shares of common stock authorized, $.001 par value each and 1,000,000
shares of preferred stock, $.001 par value each. On October 30, 1992, the
certificate of incorporation was amended to change the name of the Company to
Normed Industries, Inc. The certificate of incorporation was again amended on
January 17, 1995 increasing the number of shares of common stock to 20,000,000,
$.001 par value each and 5,000,000 shares of preferred stock, $.001 par value
each. On January 24, 1995, the Company forward split the number of shares of
common stock outstanding in a ratio of 17,500 to 1 restating the number of
shares of common stock outstanding to 1,750,000. On March 28, 1995, the Company
amended its certificate of incorporation to change its name to Highland
Resources, Inc. On November 3, 1997, the Company amended its certificate of
incorporation to change its name to Highland Holdings International, Inc.
b. Description of the Company
The Company is a development stage company involved in the development of a
gold mining concession in Honduras. At present, the Company is in the
exploration stage and there is no assurance that any of its prospects or
properties contain a commercially viable ore body (reserves) until further
geologic exploration work is done, and a final feasibility study based upon such
work is concluded.
c. Issuance of Capital Stock
On March 31, 1992, the Company issued 100 shares of common stock to Mr.
Roger Fidler in consideration for the contribution of $1,500 in cash and $500 in
organization costs.
On January 24, 1995, the Company authorized a 17,500 to 1 forward split
restating the number of shares of common stock outstanding from 100 to
1,750,000.
On March 13, 1995, The Company entered into an agreement to obtain the
alluvial gold and diamond mineral rights in its Lagoa da Pedra Project of the
Lagoa da Pedra Partnership for 7,182,315 shares of common stock.
On September 11, 1996, the Company issued 2,111,996 shares of common stock
in consideration for the forgiveness of $133,000 in loans to the Company.
On September 11, 1996, the Company issued 624,000 shares of common stock as
part consideration in the acquisition of Minas Novas.
On April 4, 1997, the Company authorized a 30 to 1 reverse split restating
the number of shares of common stock outstanding from 11,668,311 to 389,037.
18
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 2,000,000 shares of common stock to various parties in consideration for the
purchase of 18 unpatented mining claims situated in Pima County, Arizona, valued
at $20,000 or $.01 per share.
On May 5, 1997, the Company issued, pursuant to Regulation D, and aggregate
of 1,310,000 shares of common stock to various related parties to the Company in
consideration of consulting services valued at $13,100 in services or $.0l per
share.
On May 30, 1997, the Company sold 300,000 shares of common stock pursuant
to Rule 504 for an aggregate consideration of $15,000 or $.05 per share.
As of June 30, 1997, the Company sold 1,800,000 shares of common stock at
$.05 per share, pursuant to a private placement under "Rule 504" of the
Securities Act of 1933, as amended, for an aggregate consideration of $90,000.
On December 16, 1997, the Company issued 250,000 shares of common stock
pursuant to the agreement with Minas Novas Pesquisa E. Lavra S.A. to three
individuals named in the agreement as follows: 137,500 shares to Friedrich Ewald
Ronger, 87,500 shares to Victor Eugenio Suckau and 25,000 shares to Lothar
Wirth.
On December 16, 1997, the Company issued 30,000 shares of common stock to 6
advisory board members in exchange for services over a period of 1 year valued
at $1,500 or $.05 per share.
On December 16, 1997, the Company sold 525,000 shares pursuant to
Regulation D for an aggregate consideration of $525,000 or $1.00 per share.
On January 5, 1998, the Company sold 900,000 shares of common stock in
consideration for an aggregate of $56,000 or $0.06 per share.
On February 4, 1998, the Company issued 5,000 shares of common stock to
Loeb Aaron & Company, Ltd. in consideration for consulting services valued at
$1,000 or $0.20 per share.
On February 4, 1998, the Company issued an aggregate of 50,000 shares of
common stock to Mr. John Demoleas, President, in consideration for services
valued at $5,000 or $0.10 per share.
For the period from January 1, 1998 to December 31, 1998, the Company sold
an aggregate of 406,396 shares of common stock for an aggregate consideration of
$40,639 or $0.10 per share.
For the period from January 1, 1998 to December 31, 1998, the Company sold
an aggregate of 84,945 shares of common stock for an aggregate consideration of
$7,361 or $0.09 per share.
For the period from January 1, 1998 to December 31, 1998, the Company
issued an aggregate of 225,000 shares of common stock in consideration for
$22,500 or $0.10 per share in consideration for consulting services.
19
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The Company sold an aggregate of 2,000,000 shares of common stock for an
aggregate consideration of $60,000 or $0.03 per share.
The Company sold an aggregate of 1,333,333 shares of common stock to Mr.
John Demoleas, President, for an aggregate consideration of $40,000 or $0.03 per
share.
On July 21, 1998, the Company reverse split the number of shares of common
stock outstanding in a ration of 7 to 1 restating the number of shares of common
stock outstanding on that date from 11,608,618 to 1,655,000.
The Company sold 177,776 shares of common stock for an aggregate
consideration of $17,778 or $0.10 per share.
The Company sold 355,355 shares of common stock for an aggregate
consideration of $30,222 or $0.085 per share.
The Company sold 266,666 shares of common stock for an aggregate
consideration of $20,000 or $0.075 per share.
The Company sold 1,326,666 shares of common stock for an aggregate
consideration of $25,000 or $0.02 per share.
The Company sold 333,334 shares of common stock for an aggregate
consideration of $5,000 or $0.0 15 per share.
The Company sold 230,000 shares of common stock for an aggregate
consideration of $25,000 or $0.11 per share.
The Company sold 1,000,000 shares of common stock to Mr. John Demoleas,
President, for an aggregate consideration of $15,000 or $0.015 per share.
As of September 30, 1999, the Company sold 300,000 shares of common stock
for $10,000 or $0.067 per share to Mr. George Nadas, Secretary.
As of September 30, 1999, the Company sold 7,300,000 shares of common stock
for $104,000 or $0.01 per share to Mr. John Demoleas, President.
As of September 30, 1999, the Company sold 355,555 shares of common stock
for $22,365 or $0.06 per share.
As of September 30, 1999, the Company had issued and placed into escrow
600,000 shares of common stock to A-Z Professional Consultants, Inc. to be
issued for the performance of certain financial consulting services to be valued
at $30,000 or $.05 per share.
Note 2 - Summary of Significant Accounting Policies
---------------------------------------------------
a. Basis of Financial Statement Presentation
The accompanying unaudited financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $1,298,608 for the period from inception, March 23, 1992
to September 30, 1999.
20
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
These factors indicate that the Company's continuation as a going concern is
dependent upon its ability to obtain adequate financing. The Company is
anticipating the need to do further private placements to bring the mine in
Honduras into production and with the completion of its additional private
placement and with the increase in working capital, the Company will be able to
continue to develop the Company's mining concession and begin production. The
Company will require substantial additional funds to finance its business
activities on an ongoing basis and will have a continuing long-term need to
obtain additional financing. The recoverability of the amounts shown for the
mining projects and the ability of the Company to continue as a going concern
are dependent upon its ability to raise capital, achieve profitable operations
from its mining activities, and on a satisfactory regulatory environment
governing the development and operation of mining properties in Honduras.
The financial statements presented consist of the consolidated balance
sheet of the Company as at December 31, 1998 and the unaudited balance sheet as
at September 30, 1999 and the related consolidated statements of operations,
stockholders equity and cash flows for the years ending December 31, 1997 and
1998 and the related unaudited consolidated statements of operations,
stockholders equity and cash flows for the nine months ended September 30, 1998
and 1999 and for the period from inception, March 23, 1992, to September 30,
1999.
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
c. Mineral Property and Equipment
The Company follows the full cost method of accounting for mineral
properties. Accordingly, all costs associated with acquisition, exploration, and
development of mineral reserves, including directly related overhead costs, are
capitalized.
All capitalized costs of mineral properties including the estimated future
costs to develop proved reserves, will be amortized on the unit-of-production
method using estimates of proved reserves. Investments in unproved properties
and major development projects are not amortized until proved reserves
associated with the projects can be determined or until impairment occurs. If
the results of an assessment indicate that the properties are impaired, the
amount of the impairment is added to the capitalized costs to be amortized.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves of minerals, in which case the gain or loss is recognized in income.
All sales or abandonments or impairments of properties are recorded in the
Statement of Operations, with resulting gain or loss recognized. Write-downs
will be recorded when the carrying value is not supportable.
21
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
d. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives using the straight-line
methods over a period of five years. Maintenance and repairs are charged against
operations and betterments are capitalized.
e. Revenue Recognition
Revenue is recognized when extracted minerals are shipped.
f. Foreign Currency Translation
Balance sheet accounts of international subsidiaries are translated at the
current exchange rate as of the end of the accounting period. Income statement
items are translated at average exchange rates. The resulting translation
adjustment is recorded as a separate component of stockholders' equity.
g. Selling and Marketing Costs
Selling and Marketing - Certain selling and marketing costs are expensed in
the period in which the cost pertains. Other selling and marketing costs are
expensed as incurred.
h. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
i. Significant Concentration of Credit Risk
At December 31, 1998 and September 30, 1999, the Company has concentrated
its credit risk by maintaining deposits in several banks. The maximum loss that
could have resulted from this risk totaled $-0- and $-0- which represents the
excess of the deposit liabilities reported by the banks over the amounts that
would have been covered by the federal insurance.
j. Asset Impairment
The Company adopted the provisions of SEAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SEAS No. 121) effective January 1, 1996. SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the estimated undiscounted cash flows to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. There was no effect of such adoption on the Company's financial position or
results of operations.
22
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
k. Earnings per share
Basic earnings per share are calculated on the basis of the weighted
average number of common shares outstanding for each period.
Year ended Year Ended Nine Months Nine Months
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
- --------------------------------------------------------------------------------
Total number common
shares outstanding 3,912,693 2,134,123 2,300,055 9,962,675
Note 3 - Acquisition of Assets
------------------------------
a. Option on Acquisition of Minas Novas
On June 27, 1996, the Company entered into an agreement with Minas Novas
Pesquisa E Lavra S.A. ("Minas Novas"), a Brazilian corporation for the
acquisition of 95% of the issued and outstanding stock of Minas Novas. On
September 11, 1997, the agreement was modified as to the terms and conditions as
follows:
The Company paid $15,000 pursuant to the original agreement on July 26,
1996.
On September 11, 1996, the Company issued 624,000 shares of common stock as
part consideration in the acquisition of Minas Novas. These shares were
subsequently restated to 20,800 upon the reverse split of the Company's stock.
On December 16, 1997, the Company issued an additional 250,000 shares of
common stock pursuant to the agreement with Minas Novas to three individuals
named in the agreement as follows: 137,500 shares to Friedrich Ewald Ronger,
87,500 shares to Victor Eugenio Suckau and 25,000 shares to Lothar Wirth. These
shares were issued as a further inducement and as additional consideration and
collateral for the consummation of this purchase agreement. The shares of common
stock were valued at $0. 125 per share representing one half of the market price
on that date.
The Company agreed to advance money as follows:
$5,000 per month for the next 12 months for payment of administration
costs.
$20,000 toward the costs of the elaboration of the Economic Development
Plan as required by the Brazilian government $80,000 for working capital.
23
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The shareholders' of Minas Novas have an option until September 30, 1998,
to require the Company to repurchase these shares at $2.00 per share for an
aggregate consideration of $500,000 by notifying the company of Minas Nova's
intention in writing by September 1, 1998 and must effect payment within 120
days. Thirty days after written notice, interest will accrue at the rate of 2%
per month.
The default of any of the obligations of either the Company or Minas Novas
that is not corrected in a maximum period of 30 days, counting the date of the
specific notification will cause the dissolution of the contract and subject the
Company to a penalty of $210,000 and the return to each party the shares issued
pursuant to this contract.
As of December 31, 1997, the Company has recorded the obligation to
repurchase the 250,000 shares of common stock at $2.00 each for an aggregate of
$500,000.
As of December 31, 1998, the Company has concluded that the Minas Novas
Project is not able to yield production sufficient to offset the required
investment in exploration and commercial production costs and has charged the
mineral costs of $176,500 accumulated for this project and has charged
operations for the year ending December 31, 1998. Management is also of the
opinion that Minas Novas Pesquisa E Lavra S.A. has not lived up to the terms and
conditions of the contract for purchase, exploration and development, entered
into on September 11, 1997 and has discontinued any further relationship with
the shareholders of Minas Novas. The Company has also placed a stop transfer
order on the 250,000 shares of common stock that were issued as a further
inducement and as additional consideration and collateral for the consummation
of this purchase agreement and has requested the return of these shares.
Management is also of the opinion that it is not liable for default of monies
due under the terms of this agreement and has written off additional liabilities
aggregating $603,000. Pursuant to the terms and conditions of the agreement, the
Company may be liable for liquidated damages of up to $210,000 if litigation
should occur. As of the date of the financial statements, a lawsuit has not been
entered into by either party.
b. Arizona Property
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 2,000,000 shares of common stock to various parties in consideration for the
purchase of 1 unpatented mining claims situated in Pima County, Arizona, valued
at $20,000.
This agreement was memorialized on January 23, 1998 with the actual
transfer and registration of title to the 18 mining claims. As of December 31,
1998, the Company has concluded that the Arizona Project is not able to yield
production sufficient to offset the required investment in exploration and
commercial production costs and has charged the mineral costs of $29,658
accumulated for this project and has charged operations for the year ending
December 31, 1998.
24
<PAGE>
HIGHLAND HOLDINGS International, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
c. Honduras Properties
In October, 1997, the Company, through its subsidiary Highland Resources
Honduras S.A., of which the Company owns 95%, entered into an agreement for the
purchase of 100% ownership of the and the mineral rights from Desarrollo De
Recursos Naturales, S. de R.L. de C.V., ("Derena") consisting of mineral
concessions aggregating 18,000 hectares. The agreement was memorialized in
Honduras on March 18, 1998 with the recording and registration of the Company
rights and titles to the concessions in Tegucigalpa, Honduras through the
Company's subsidiary Highland Resources Honduras, S.A.
As of March 31, 1998, title had transferred by agreement but had not been
officially registered with the local government.
In June, 1997, the Company paid a fee of $25,000 to Derena for the right to
do due diligence on the properties owned by Derena in Honduras. Upon
acceptability of the investigation, the Company would obtain 75% ownership of
Derena for a cash payment of US$ 250,000. In December, 1998, the percentage of
ownership was renegotiated to become 95% ownership. Derena's minority holding of
5% would be a "free carried interest", (i.e. not contributing to exploration,
administration and development costs, except as follows:
Production from all properties would be subject to a 2% "Net Smelter
Royalty", payable to Decenna, Mr. Mattsson and/or his assignees and/or
successors.
For a period of 5 years from June 10, 1997, the Company have the option to
purchase Mr. Mattsson's minority interest interests, whether carried or
participatory for the sum of US$1,000,000.
Mr. Mattsson has been appointed to the Executive Advisory Board of the
Company.
As of December 31, 1998, the Company has paid $391,313 pursuant to the
terms of this agreement and the percentage of ownership was renegotiated to
become 95%.
Note 4 - Related Party Transactions
-----------------------------------
a. Issuance of Common Stock
On March 31, 1992 the Company issued 100 common shares to Mr. Roger Fidler
in consideration for $1,500 in cash and the contribution of $500 in organization
costs.
On March 13, 1995 when the Company entered into an agreement to purchase
the alluvial mineral rights in the Lagoa da Pedra Project from the Lagoa da
Pedra Partnership for 7,182,315 of the Company's common shares.
25
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 1,310,000 shares of common stock to various related parties to the Company in
consideration for services of $13,100 in services valued at $.01 per share.
On December 16, 1997, the Company issued ,pursuant to regulation D, 30,000
shares of common stock to 6 advisory board members in exchange for services over
a period of 1 year valued at $1,500 or $.05 per share.
On February 4, 1998, the Company issued 7,143 post split shares of common
stock to John Demoleas, President, in consideration of consulting fees valued at
$5,000 or $0.10 per share.
On July 10, 1998, the Company sold 190,476 post split shares of common
stock to John Demoleas, President, in consideration for $40,000 or $0.21 per
share.
On September 9, 1999, the Company issued 726,666 shares of common stock to
John Demoleas in consideration for services valued at $14,533 or $0.02 per
share.
As of April, 1999, the Company sold 7,300,000 shares of common stock to
John Demoleas for an aggregate consideration of $104,000 or $0.014 per share.
As of September 30, 1999, the Company sold 300,000 shares of common stock
for $10,000 or $0.03 per share to Mr. George Nadas, Secretary.
b. Officer Compensation
For the year ended December 31, 1998 and for the nine months ended
September 30, 1999, the Company has not paid any salary to any of the officers.
Note 5 - Preferred Stock
------------------------
The certificate of Incorporation was amended on January 17, 1995 increasing
the number of shares authorized from 200 common shares with a par value of $.001
to an aggregate number of shares of stock which the corporation shall have
authority to issue is 25,000,000, which are divided into 5,000,000 shares of
Preferred stock with a par value of $.001. The Preferred Shares have the
following provisions:
a. Dividends are cumulative
Preferred shareholders are entitled to receive dividends at the rate of $.
12 per share per annum and no more, payable in cash quarterly commencing March
31, 1995 and thereafter on the last day of September, December, March and June
of each year on any Preferred series A shares ("Preferred Stock") outstanding.
Dividends that are in arrears must be paid before any distribution shall be paid
on common stock.
26
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
b. Redemption
At any time during the six year period commencing on the date of issuance,
the Company may redeem all or part of the outstanding shares of the Preferred
Stock at the redemption cash price equal to $2.50 per share, together with all
declared and unpaid dividends provided the Company gives thirty days prior to
the date specified for redemption.
c. Voting Rights
Except as otherwise required by law or by the articles of incorporation of
the Company, the shares of Preferred Stock shall have no voting rights
whatsoever.
d. Conversion Rights
Each share of Preferred Stock shall be convertible at the option of the
holder, at any time during the time period commencing 5 years from the date of
issuance and ending 6 years from the date of issuance, and on or prior to the
5th day prior to a redemption date into fully paid and nonassessable shares of
common stock of the Company. The number of shares of common stock into which
each share of the Preferred Stock may be converted shall be determined by
dividing the initially issuable conversion price of $2.50 subject to adjustment
by the conversion price in effect at the time of the conversion. The conversion
price from time to time in effect shall be subject to adjustment as follows: In
case the Company shall at any time subdivide the outstanding shares of common
stock, or shall issue a stock dividend on its outstanding common stock, the
conversion price in effect immediately prior to such subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Company
shall at any time combine the outstanding shares of common stock, the conversion
price in effect immediately prior to such combination shall be proportionately
increased, effective at the close of business on the date of such subdivision,
dividend or combination, as the case may be.
e. Contingent Liability
The Company shall at all times reserve and keep available out its
authorized but unissued common stock, solely for the purpose of effecting the
conversion of the Preferred Shares, the full number of shares of common stock
deliverable upon the conversion of all Preferred Stock from time to time
outstanding.
At December 31, 1998 and September 30, 1999, the number of shares of
preferred stock outstanding was -0-.
Note 6 - Mineral Properties
---------------------------
a. Cost basis
Mineral properties consist of the following at December 31, 1998 and
September 30, 1999:
27
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The Derena Project
- --------------------------------------------------------------------------------
The accumulated costs consists of unproved concession costs which include
the cost to purchase, and pay the maintenance and filing fees to the country of
Honduras.
The capitalized costs are allocated to the properties as follows:
December 31, September 30,
1998 1999
---- ----
Derena project $301,500 $391,313
Note 7 - Capital Assets
-----------------------
Capital Assets consisted of the following at December 31, 1997 and March
31, 1998:
December 3, 1998 September 30, 1999
---------------- ------------------
Office equipment $7,191 $7,191
Accumulated depreciation 2,577 4,354
------ ------
Balance $4,614 $2,837
------ ------
Note 8 - Income Taxes
---------------------
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of September 30, 1999, the Company had
no material current tax liability, deferred tax assets, or liabilities to impact
on the Company's financial position because the deferred tax asset related to
the Company's net operating loss carryforward and was fully offset by a
valuation allowance.
At September 30, 1999, the Company has net operating loss carry forwards
for income tax purposes of $1,358,266. This carryforward is available to offset
future taxable income, if any, and expires in the year 2010. The Company's
utilization of this carryforward against future taxable income may become
subject to an annual limitation due to a cumulative change in ownership of the
Company of more than 50 percent.
The components of the net deferred tax asset as of September 30, 1999 are
as follows:
Deferred tax asset:
Net operating loss carry forward $ 461,810
Valuation allowance $ (461,810)
-------------
Net deferred tax asset $ -0-
-------------
28
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The Company recognized no income tax benefit for the loss generated in the
period from inception, March 23, 1992, to December 31, 1998;for nine months
ended September 30, 1999.
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 9 - Mineral Properties Not Subject to Amortization
-------------------------------------------------------
The Company is currently participating in mineral exploration and
development activities on properties identified as the alluvial gold and diamond
placer concessions. At December 31, 1998 and September 30, 1999, a determination
cannot be made about the extent of additional mineral reserves that should be
classified as proved reserves as a result of this project. Consequently, the
associated property costs and exploration costs have been excluded in computing
amortization of the full cost pool. The Company will begin to amortize these
costs when the project is evaluated, which is currently estimated to be in the
spring of 2000.
Note 10 - Cash Flow Information
-------------------------------
The following is supplemental cash flow information for the period from
inception, March 23, 1992, to September 30, 1999.
Issuance of 7,182,315 common shares for
acquisition of mineral properties
On March 13, 1995 $(297,193)
Issuance of 2,000,000 shares of common
stock for acquisition of various
mining claims in Arizona (20,000)
Issuance of 1,310,000 shares of common
stock in consideration for consulting services (3,100)
Issuance of 30,000 shares of common stock
for services by various Advisory Board members (1,500)
Issuance of 250,000 shares of common stock
pursuant to the agreement with Minas Novas (31,500)
Issuance of shares for consulting fees (64,000)
Issuance of shares for consulting fees (30,000)
Capital Stock 457,293
---------
Total $ -0-
Note 10 - Commitments and Contingencies
---------------------------------------
a. Stock Option Plan and Stock Grant Program
In June 1995, the Company adopted a non-qualified stock option plan and a
stock grant program with the following provisions:
29
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Stock Option Plan: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers and consultants.
Under this plan, no employee may receive more than 50,000 options. Options are
nontransferable and expire if not exercised within two years. The options may
not be exercised by the employee until after the completion of two years of
employment with the Company. The options are issuable to officers, key employees
and consultants in such amounts and prices as determined by the Board of
Directors. As of December 31, 1997, no options have been granted pursuant to
this plan.
2. Stock Grant Program: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers, directors, and
consultants. Under this plan, no employee may receive more than 100,000 options.
The program requires the employee to remain in the employ of the company for at
least one year following the grant and to agree not to engage in any activity
which would be considered in competition with the Company's business. If the
employee violates any one of these conditions the ownership of the stock issued
under the program shall revert back to the Company. The stock issued under the
program is nontransferable for two years. As of December 31, 1998 and September
30, 1999, no options have been granted pursuant to this plan.
b. Leased Office Space
The Company occupies office space at the office's of George Nadas,
Chartered Accountant and Secretary to the Company at 800 Petrolia Road, Unit 7,
Toronto, Canada M3J 3K4. The Company pays rent on a month to month basis at the
rate of $250.
c. Leased Office Space in Honduras
On October 26, 1997, the Company through its subsidiary HRH leased for two
years approximately 630 square feet of office space in the city of Tegucigalpa
for $625 per month.
d. Consulting Agreements
1. Agreement with Loeb Aron & Company Ltd.
On November 17, 1997, the Company entered into a consulting agreement with
Loeb Aron & Company LTD.("Loeb Aron"), a company incorporated in England for
services relating to geology and related mining, smelting, engineering, and
production of minerals. The agreement is for two years beginning October 1, 1997
and is extended automatically for a period of 6 months or until notice is given
by either party.
For the year ended December 31, 1998, the Company has paid Loeb Aron as
follows: On February 4, 1998, 714 post split shares of common stock valued at
$1,000 and on September 10, 1998, 230,000 shares of common stock valued at
$25,000.
Agreement with A-Z Professional Consultants, Inc.
In September 1999 the Company entered into an Agreement for financial
consulting services with A-Z Professional Consultants, Inc., a Utah corporation
("A-Z") for the purposes of consulting on matters relating to mergers and
acquisitions, advising corporate management, and in performing the general and
administrative duties for public-held companies and development stage investment
ventures.
Payment for these services is 600,000 shares of common stock. As of
September 30, 1999 the Company has delivered 300,00 shares of common stock
valued at $.05 per share and has held in escrow the balance of 300,000 shares
pending completion of the agreed upon services for an aggregate consideration of
$300,000.
30
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
e. Options Granted to Purchase Stock
The Company granted to various people the right to purchase shares of the
Company's common stock pursuant to the following terms and conditions:
f. Litigation
The Company is being sued by Mr. Douglas Furth of Aurora, Ohio for breach
of contract relating to a consulting agreement entered into on August 26, 1996.
The agreement relates to Mr. Furth performing corporate growth, public relations
and expansion of the Company's shareholder base.
Pursuant to the agreement, the Company was to issue 50,000 shares of common
stock upon signing the agreement, pay a monthly retainer of 10,000 unrestricted
shares of common stock, and pay a bonus of 50,000 unrestricted shares of common
stock when the Company's stock is trading at an average closing price of $3.00
per share for a period of 14 consecutive days; pay a bonus of 50,000
unrestricted shares of common stock when the Company's common stock is trading
at a average closing price of $4.00 per share for 14 consecutive days; pay a
bonus of 100,000 unrestricted shares of common stock when the Company's stock
trades at an average closing price of $5.00 per share for a period of 14 days;
pay a bonus of 100,000 unrestricted shares of common stock when the Company's
stock trades at an average closing price of $6.00 per share for a period of 14
days; and pay a bonus of 100,000 unrestricted shares of common stock when the
Company's stock trades at an average closing price of $7.00 per share for a
period of 14 days. Mr. Furth is seeking damages in the amount of $75,000 plus
interest and punitive damages of $1,000,000. In the opinion of Management, the
Company's exposure for loss is estimated to be 1,572 shares of common stock.
Note 13 - Convertible Promissory Note
-------------------------------------
Subsequent to the date of the financial statements, the Company borrowed an
aggregate of $125,000 as evidenced by the following Convertible Promissory Note,
(the "Note") dated March 26, 1998 and due September 22, 1998. The Note is
payable pursuant to the following terms and conditions:
31
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Interest is payable at the rate of 12% in advance upon the closing of the
issuance of this Note. Interest will be payable in advance in the form of the
Company's shares of common stock. The number of shares of common stock will be
computed as the interest amount on this Note through the full term of the Note
divided by 75% of the lowest bid price of the shares of common stock quoted on
the over the counter Bulletin Board market for the 5 day trading period. The
holder of this Note has the right to convert this note, in whole or in part at
any time into shares of common stock, at the lesser of 75% of the lowest closing
bid price for the shares quoted on the Bulletin Board for the 5 day trading
period ending on the day prior to the conversion date, or the lowest closing bid
price for the shares quoted on the Bulletin Board for the five day trading
period ending on the day prior to the date.
Notwithstanding any provisions of this Note, in no event will the Holder be
entitled to convert this Note into shares to the extent that after such
conversion, the number of shares of common stock beneficially owned by the
Holder and its affiliates and the number of shares issuable upon the conversion
of this Note would result in beneficial ownership and its affiliates of more
than 4.9% of the issued and outstanding shares of common stock as of the date of
the conversion. The number of shares is also subject to various conversion price
adjustments and adjustment for reverse stock splits.
The Company has agreed to use the proceeds of this Note will be used for
working capital and not to pay any indebtedness of the Company. The proceeds to
the Company were $125,000 less commission of $15,635 with net proceeds of
$109,365.
As of December 31, 1998 and September 30, 1999, the Company is obligated to
repay $22,365 and $-0- respectively.
As of December 31, 1998, the Company had converted $96,000 in debt into an
aggregate of 491,341 shares of common stock for an aggregate of $48,000. These
shares were subsequently reverse split in a ratio of 7 to 1 restating the number
of shares to 70,192 and an additional 533,131 for $48,000.
As of September 30, 1999, the Company issued 355,555 shares of common stock
in consideration for the conversion of $22,365 in debt.
Note 14 - Development Stage Company
-----------------------------------
The Company is a development stage company with little operating history.
The Company will be dependent upon its ability to raise additional capital to
engage in any business activity. Since its organization, the Company's
activities have been limited to the sale of shares common stock in connection
with its organization, the acquisition of the mineral properties, the
preparation of a marketing plan, limited pilot test production, test drillings
and samplings and completion of geological exploration.
32
<PAGE>
F/S
Exhibit 2
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(973) 790-8775
To The Board of Directors and Shareholders
of Highland Holdings International, Inc. (a development stage company)
I have audited the accompanying consolidated balance sheet of Highland
Holdings International, Inc. (a development stage company) as of December 31,
1997 and the related consolidated statements of operations, cash flows and
shareholders' equity for the period from inception, March 23, 1992, to December
31, 1997. These consolidated financial statements are the responsibility of the
company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Highland
Holdings International, Inc. (a development stage company) as of December 31,
1997 and the related consolidated statements of operations, cash flows and
shareholders' equity for the period from inception, September 5, 1997, to
December 31, 1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Highland Holdings International, Inc. (a development stage
company) will continue as a going concern. As more fully described in Note 2,
the Company has incurred operating losses since inception and requires
additional capital to continue operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans as to these matters are described in Note 2. The financial statements do
not include any adjustments to reflect the possible effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the possible inability of Highland Holdings
International, Inc. (a development stage company) to continue as a going
concern.
Thomas P. Monahan, CPA
March 12, 1998
Paterson, New Jersey
33
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEET
March 31,
December 31, December 31, 1998
1996 1997 Unaudited
---- ---- ---------
Assets
Current assets
<S> <C> <C> <C>
Cash $ 100 $ 15,719 $ 99,786
Prepaid expenses 4,692 6,682
----------- -----------
Total current assets 100 20,411 106,468
Capital assets 12,028 11,088
Mineral properties 486,000 507,658 525,689
Other assets
Security deposit 2,853 2,853
Organization costs 50
----------- ------------ -----------
Total other assets 50 2,853 2,853
----------- ----------- -----------
Total assets $ 486,150 $ 542,950 $ 646,098
-----------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 22,700 $ 10,525
Note payable shareholder 9,700
Convertible promissory note 125,000
Notes payable-affiliated party 603,000 584,500
----------- -----------
Total liabilities 625,700 729,725
Stockholders equity
Preferred stock- $.0O1 par value , authorized
5,000,000 shares. The number of shares outstanding
at December 31, 1997 and March 31, 1998 was -0-
and -0- respectively
Capital stock-$.00 1 par value, authorized
20,000,000 shares. The number of shares
outstanding at December 31, 1997 and March 31,
1998 was 6,603,944 and 6,603,944 respectively 11,668 6,604 6,604
Additional paid in capital 458,529 1,159,693 1,245,693
Accumulated deficit during development stage (349,047) (1,249,047) (1,335,924)
----------- ----------- -----------
Total stockholders equity 121,150 (82,750) (83,627)
----------- ----------- -----------
Total liabilities and stockholders equity $ 486,150 $ 542,950 $ 646,098
----------- ----------- -----------
See accompanying notes to financial statements.
34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATTIONS
For the
For the three For the three period from
For the year For the year months ended months ended inception to
ended ended March 31, March 31, March 31,
December 31, December 31, 1997 1998 1998
1996 1997 Unaudited Unaudited Unaudited
---- ---- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income $ -0- $ -0- $ -0- $ -0- $ -0-
Cost of goods sold -0- -0- -0- -0- -0-
----------- ----------- ----------- ------------- ------------
Gross profit -0- -0- -0- -0- -0-
Operations
General and
administration 317,097 898,614 85,937 1,334,088
Depreciation and
amortization 50 1,386 940 1,386
----------- ----------- ----------- -------------
Research and
development 317,097 900,000 86,877 1,335,924
Total expense
Net Profit(Loss) $ (317,097) $ (900,000) $ -0- $ (86,877) (1,335,924)
=========== =========== =========== ============= ==========
Net loss per share-
Basic $ (0.82) $ (0.14) $ 0.00 $ (0.01) $ (0.20)
=========== =========== =========== ============= ==========
Total number of
shares outstanding 388,944 6,603,944 388,944 6,603,944 6,603,944
=========== =========== =========== ============= ==========
Net loss per share-
diluted $ (.17) $ (.11) $ (.00) $ (.01) $ (.15)
=========== =========== =========== ============= ==========
Total number of
shares 1,818,944 8,033,944 1,818,944 8,033,944 9,033,944
=========== =========== =========== ============= ==========
See accompanying notes to financial statements
35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
For the period
from inception
For the three For the three March 23
For the year For the year months ended months ended 1992 to
ended ended March 31, March 31, March 31,
December 31, December 31, 1997 1998 1998
1996 1997 Unaudited Unaudited Unaudited
---- ---- --------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net profit(loss) $ (317,197) $ (900,000) $ -0- $ (82,185) (1,335,924)
Depreciation and amortization 100 1,386 940 1,834
Non-cash transactions 192,560 542,199
Prepaid expenses (4,692) (6,682) (6,682)
Accounts payable 22,700 (12,175) 10,525
----------- ----------- ----------- -----------
TOTAL CASH FLOWS (317,097) (688,046) -0- (100,102) (788,048)
FROM OPERATIONS
CASH FLOWS FROM
FINANCING ACTIVITIES
Notes payable 340,000 603,000 (18,500) 584,500
Proceeds of convertible note 125,000 125,000
Additional capital contribution 86,000 86,000
Sale of stock-net of
offering costs 630,000
Shareholder loan (148,000) 9,700 9,700
----------- ----------- ----------- -----------
TOTAL CASH FLOWS FROM
FINANCING ACTIVITIES 192,000 1,233,000 202,200 805,200
CASH FLOWS FROM INVESTING
ACTIVITIES
Security deposit (2,853) (2,853)
Office equipment 18,824 18,824
Mineral properties (340,967) 507,658 (18,031) (525,689)
----------- ----------- ----------- -----------
TOTAL CASH FLOWS FROM
INVESTING ACTIVITIES (340,967) (529,335) (18,031) (547,366)
NET INCREASE(DECREASE)
IN CASH (1,130) 15,619 -0- 84,067 99,786
CASH BALANCE BEGINNING
OF PERIOD 1,230 100 -0- 15,719 -0-
----------- ----------- ----------- ----------- -----------
CASH BALANCE END
OF PERIOD $ 100 $ 15,719 $ -0- $ 99,786 $ 99,786
=========== =========== =========== =========== ===========
See accompanying notes to financial statements
36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Additional Deficit
Preferred Preferred Common Common paid in accumulated during
Date Stock Stock Stock Stock capital development stage Total
---- ----- ----- ----- ----- ------- ----------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
08-13-1992 100 $ 2,000 $ 2,000
12-31-1994 Net loss (1,800) (1,800)
-------- -------- --------- --------- ---------- ---------- ---------
12-31-1994 100 2,000 (1,800) 200
01-24-1995(1) 1,750,000 1,750 (1,750) -0-
03-13-1995(2) 7,182,315 7,182 286,015 293,197
03-13-1995 27,000 27,000
12-31-1995 Net loss (30,050) (30,050)
-------- -------- --------- --------- ---------- ---------- ---------
12-31-1995 8,932,315 8,932 313,265 (31,850) 290,347
09-11-1996(3) 2,111,996 2,112 145,264 147,376
09-11-1996(4) 624,000 624 624
12-31-1996 Net loss (317,197) (317,197)
-------- -------- --------- --------- ---------- ---------- --------
12-31-1996 11,668,311 11,668 $458,529 $(349,047) $121,150
04-01-1997(5) 388,944 $ 389 $469,808 $(349,047) $121,150
05-04-1997(6) 2,000,000 2,000 18,000 20,000
05-05-1997(7) 1,310,000 1,310 11,790 13,100
05-31-1997(8) 300,000 300 14,700 15,000
06-30-1997(9) 1,800,000 1,800 88,200 90,000
12-16-1997(10) 250,000 250 31,250 31,500
12-16-1997(11) 30,000 30 1,470 1,500
12-16-1997(12) 500,000 500 499,500 500,000
12-16-1997(12) 25,000 25 24,975 25,000
12-31-1997 Net loss (900,000) (900,000)
-------- -------- --------- --------- ---------- ---------- --------
12-31-1997 -0- -0- 6,603,944 6,604 1,159,693 (1,249,047) (82,750)
Unaudited
3-31-1998(13) 86,000 86,000
3-31-1998 Net loss (86,877) (86,877)
-------- -------- --------- --------- ---------- ---------- --------
-0- -0- 6,603,944 6,604 1,2455,693 (1,335,924) (83,627)
======== ======== ========= ===== ========== ========== =======
(1) Forward split 1,750 to 1
(2) Issuance of shares for acquisition of Lagoa da Pedra Project valued at
$0.04 per share.
(3) Issuance of shares on consideration for the forgiveness of loans to the
company valued t $0.07 per share.
See accompanying notes to financial statements
37
</TABLE>
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(4) issuance of shares as part consideration in the acquisition of Minas Novas
and reverse split to 20,800-on 4-1-1997 valued at $.001 per share.
(5) reflects 30 to 1 reverse split.
(6) Issuance of shares the purchase of unpatented mining claims in Pima County,
Arizona valued at $.0 1 per share.
(7) issuance of shares to various related parties to the Company in
consideration of consulting services valued at 5.01 per share
(8) Sale of shares at $0.50 per share.
(9) Sale of shares at $0.05 per share.
(10) Issuance of shares pursuant to agreement of the acquisition of Minas Novas
values at $0. 126 per share.
(11) issued of shares to 6 advisory board members in exchange for services over
a period of 1 year valued at 5.05 per share.
(12) Sale of shares at $1.00 per share. Additional contributed capital See
accompanying notes to financial statements.
38
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note 1. Organization of Company and Issuance of Common Stock
------------------------------------------------------------
a. Creation of the Company
Highland Holdings International, Inc. (the "Company") was formed on March
23, 1992 under the laws of the State of Delaware as Northern Medical, Inc. with
10,000,000 shares of common stock authorized, $.001 par value each and 1,000,000
shares of preferred stock, $.001 par value each. On October 30, 1992, the
certificate of incorporation was amended to change the name of the Company to
Normed Industries, Inc. The certificate of incorporation was again amended on
January 17, 1995 increasing the number of shares of common stock to 20,000,000,
$.001 par value each and 5,000,000 shares of preferred stock, $.001 par value
each.. On January 24, 1995, the Company forward split the number of shares of
common stock outstanding in a ratio of 17,500 to 1 restating the number of
shares of common stock outstanding to 1,750,000. On March 28, 1995, the Company
amended its certificate of incorporation to change its name to Highland
Resources, Inc. On November 3, 1997, the Company amended its certificate of
incorporation to change its name to Highland Holdings International, Inc.
b. Description of the Company
The Company is a development stage company involved in the development its
mining prospects in Brazil, Honduras and Arizona. At present, the Company is in
the exploration stage and there is no assurance that any of its prospects or
properties contain a commercially viable ore body (reserves) until geologic
exploration work is done, and a final feasibility study based upon such work is
concluded and if successful in such exploration, production of these minerals.
c. Issuance of Capital Stock
On March 31, 1992, the Company issued 100 shares of common stock to Mr.
Roger Fidler in consideration for the contribution of $1,500 in cash and $500 in
organization costs.
On January 24, 1995, the Company authorized a 17,500 to 1 forward split
restating the number of shares of common stock outstanding from 100 to
1,750,000.
On March 13, 1995, The Company entered into an agreement to obtain the
alluvial gold and diamond mineral rights in its Lagoa da Pedra Project of the
Lagoa da Pedra Partnership for 7,182,315 shares of common stock.
On September 11, 1996, the Company issued 2,111,996 shares of common stock
in consideration for the forgiveness of $133,000 in loans to the Company.
On September 11, 1996, the Company issued 624,000 shares of common stock as
part consideration in the acquisition of Minas Novas.
On April 4, 1997, the Company authorized a 30 to 1 reverse split restating
the number of shares of common stock outstanding from 11,668,311 to 389,037. F7
39
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 2,000,000 shares of common stock to various parties in consideration for the
purchase of 18 unpatented mining claims situated in Pima County, Arizona, valued
at $20,000 or $.01 per share.
On May 5, 1995, the Company issued, pursuant to Regulation D, and aggregate
of 1,310,000 shares of common stock to various related parties to the Company in
consideration of consulting services valued at $13,100 in services or $.01 per
share.
On May 30, 1997, the Company sold 300,000 shares of common stock pursuant
to Rule 504 for an aggregate consideration of $15,000 or $.05 per share.
As of June 30, 1997, the Company sold 1,800,000 shares of common stock at
$.05 per share, pursuant to a private placement under "Rule 504" of the
Securities Act of 1933, as amended, for an aggregate consideration of $90,000.
On December 16, 1997, the Company issued 250,000 shares of common stock
pursuant to the agreement with Minas Novas Pesquisa E. Lavra S.A. to three
individuals named in the agreement as follows: 137,500 shares to Friedrich Ewald
Ronger, 87,500 shares to Victor Eugenio Suckau and 25,000 shares to Lothar
Wirth.
On December 16, 1997, the Company issued 30,000 shares of common stock to 6
advisory board members in exchange for services over a period of 1 year valued
at $1,500 or $.05 per share.
On December 16, 1997, the Company sold 500,000 shares pursuant to
Regulation D for an aggregate consideration of $500,000 or $1.00 per share.
Note 2. Summary of Significant Accounting Policies
--------------------------------------------------
a. Basis of Financial Statement Presentation
The accompanying unaudited financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $1,335,924 for the period from inception, March 23, 1992,
to March 31, 1998. These factors indicate that the Company's continuation as a
going concern is dependent upon its ability to obtain adequate financing. The
Company is anticipating that with the completion of its private placement and
with the increase in working capital, the Company will be able to continue to
develop the Company's mining prospects and begin production. The Company will
require substantial additional funds to finance its business activities on an
ongoing basis and will have a continuing long-term need to obtain additional
financing. The recoverability of the amounts shown for the mining projects and
the ability of the Company to continue as a going concern are dependent upon its
ability to raise capital, achieve profitable operations from its mining
activities, and on a satisfactory regulatory environment governing the
development and operation of mining properties in Brazil and Honduras.
40
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
The financial statements presented consist of the consolidated balance
sheet of the Company as at December 31, 1997 and the unaudited balance sheet as
at March 31, 1998 and the related statements of operations, stockholders equity
and cash flows for the years ending December 31, 1996 and 1997 and the related
unaudited consolidated statements of operations, stockholders equity and cash
flows for the three months ended March 31, 1997 and 1998 and for the period from
inception, March 23, 1992, to March 31, 1998.
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
c. Mineral Property and Equipment
The Company follows the full cost method of accounting for mineral
properties. Accordingly, all costs associated with acquisition, exploration, and
development of mineral reserves, including directly related overhead costs, are
capitalized.
All capitalized costs of mineral properties including the estimated future
costs to develop proved reserves, will be amortized on the unit-of-production
method using estimates of proved reserves. Investments in unproved properties
and major development projects are not amortized until proved reserves
associated with the projects can be determined or until impairment occurs. If
the results of an assessment indicate that the properties are impaired, the
amount of the impairment is added to the capitalized costs to be amortized.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves of minerals, in which case the gain or loss is recognized in income.
All sales or abandonments or impairments of properties are recorded in the
Statement of Operations, with resulting gain or loss recognized. Write-downs
will be recorded when the carrying value is not supportable.
d. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives using the straight-line
methods over a period of five years. Maintenance and repairs are charged against
operations and betterments are capitalized.
e. Revenue Recognition
Revenue is recognized when extracted minerals are shipped.
f. Foreign Currency Translation
The Company's primary activities are conducted in Brazil and Honduras and
are determined to be self-sustaining foreign entities and thus have been
translated into United States dollars using the current rate method.
41
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
As at December 31, 1997 and March 31, 1998, all assets, liabilities,
issuance's of stock and income statement items were realized in U.S. dollars.
g. Selling and Marketing Costs
Selling and Marketing - Certain selling and marketing costs are expensed in
the period in which the cost pertains. Other selling and marketing costs are
expensed as incurred.
h. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
i. Significant Concentration of Credit Risk
At December 31, 1997 and March 31, 1998, the Company has concentrated its
credit risk by maintaining deposits in several banks. The maximum loss that
could have resulted from this risk totaled $-0- an4 $-0- which represents the
excess of the deposit liabilities reported by the banks over the amounts that
would have been covered by the federal insurance.
j. Asset Impairment
The Company adopted the provisions of SFAS No. 121, Accounting FOR THE
IMPAJRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS No. 121) effective January 1, 1996. SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the estimated undiscounted cash flows to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. There was no effect of such adoption on the Company's financial position or
results of operations.
k. Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("Statement No.
128"). Statement No. 128 applies to entities with publicly held common stock or
potential common stock and is effective for financial statements issued for
periods ending after December 15, 1997. Statement No. 128 replaces APB Opinion
15, Earnings per Share ("EPS"). Statement No. 128 requires dual presentation of
basic and diluted earnings per share by entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing net
income by the total number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities that could dilute the shares
in computing the earnings of the Company such as common stock which may be
issuable upon exercise of outstanding common stock options or the conversion of
debt into common stock.
42
<PAGE>
HIGHLAND HOLDINGS INTERNTIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
December 31, 1997
Pursuant to the requirements of the Securities and Exchange commission, the
calculation of the shares used in computing basic and diluted EPS include the
shares of common stock issued for the private placement, convertible notes and
stock options. Shares used in calculating basic and diluted net income per share
were as follows:
<TABLE>
<CAPTION>
Three months Three months
Year ended Year ended ended ended
December 31, December 31, March 31, March 31,
1996 1997 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total number common
shares outstanding 388,944 6,603,644 388,944 6,603,944
Issuance of shares pursuant
to stock option program 300,000 300,000 300,000 300,000
Issuance of shares pursuant
to stock grant program 300,000 300,000 300,000 300,000
Stock issuance to stock
options granted 130,000 130,000 130,000 130,000
Estimated numbers of shares
reserved for conversion
of convertible note 700,000 700,000 700,000 700,000
--------- --------- --------- ---------
Shares used in calculating
per share amounts - Diluted 1,818,944 8,033,944 1,818,944 8,033,944
</TABLE>
Note 3. Acquisition of Assets
-----------------------------
a. Lagoa da Pedra Project
On March 13, 1995 when the Company entered into an agreement to purchase
the alluvial mineral rights in its Lagoa da Pedra Project from the Lagoa da
Pedra Partnership for 7,182,315 of the Company's common shares. The transaction
has been accounted for as a reverse acquisition and using the purchase method of
accounting with historic costs being the basis of valuation.
The contract required a payment of $30,000 with a down payment of $5,000
which was paid on May 10, 1993 and the balance of $25,000 to be paid by December
31, 1996 by the Logoa da Pedra Partnership consisting of Jose Lourenco Viana
Neto and Charles Stetler, geologist residing the city of BHIMG, Brazil and
Enterprise Gold, a partnership located in Monaco.
43
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
As of December 31, 1996, the Company had concluded that the Logoa da Pedra
Project is not able to yield production sufficient to offset the required
investment in exploration and commercial production costs and had charged the
mineral costs $446,967 accumulated for this project were charged to operations
for the year ending December 31, 1996.
b. Option on Acquisition of Minas Novas
On June 27, 1996, the Company entered into an agreement with Minas Novas
Pesquisa E Lavra S.A. ("Minas Novas"), a Brazilian corporation for the
acquisition of 95% of the issued and outstanding stock of Minas Novas. On
September 11, 1997, the agreement was modified as to the terms and conditions as
follows:
The Company paid $15,000 pursuant to the original agreement on July 26,
1996.
On September 11, 1996, the Company issued 624,000 shares of common stock as
part consideration in the acquisition of Minas Novas. These shares were
subsequently restated to 20,800 upon the reverse split of the Company's stock.
On December 16, 1997, the Company issued an additional 250,000 shares of
common stock pursuant to the agreement with Minas Novas to three individuals
named in the agreement as follows: 137,500 shares to Friedrich Ewald Renger,
87,500 shares to Victor Eugenio Suckau and 25,000 shares to Lothar Wirth. These
shares were issued as a further inducement and as additional consideration and
collateral for the consummation of this purchase agreement. The shares of common
stock were valued at $0. 125 per share representing one half of the market price
on that date.
The Company agrees to advance money as follows:
$5,000 per month for the next 12 months for payment of administration
costs.
$20,000 toward the costs of the elaboration of the Economic Development
Plan as required by the Brazilian government.
$80,000 for working capital.
The shareholders' of Minas Novas have an option until September 30, 1998,
to require the Company to repurchase these shares at $2.00 per share for an
aggregate consideration of $500,000 by notifying the company of Minas Nova's
intention in writing by September 1, 1998 and must effect payment within 120
days. Thirty days after written notice, interest will accrue at the rate of 2%
per month.
44
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
The default of any of the obligations of either the Company or Minas Novas
that is not corrected in a maximum period of 30 days, counting the date of the
specific notification will cause the dissolution of the contract and subject the
Company to a penalty of $210,000 and the return to each party the shares issued
pursuant to this contract.
As of December 31, 1997, the Company has recorded the obligation to
repurchase the 250,000 shares of common stock at $2.00 each for an aggregate of
$500,000.
c. Arizona Properties
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 2,000,000 shares of common stock to various parties in consideration for the
purchase of 18 unpatented mining claims situated in Pima County, Arizona, valued
at $20,000.
This agreement was memorialized on January 23, 1998 with the actual
transfer and registration of title to the 18 mining claims.
d. Honduras Properties
In October, 1997, the Company, through its subsidiary Highland Resources
Honduras S.A., of which the Company owns 75%, entered into an agreement for the
purchase of 100% ownership of the and the mineral rights from Desarrollo De
Recursos Naturales, S. de R.L. de C.V., ("Derena") consisting of mineral
concessions aggregating 18,000 hectares. The agreement was memorialized in
Honduras on March 18, 1998 with the recording and registration of the Company
rights and titles to the concessions in Tegucigalpa, Honduras through the
Company's subsidiary Highland Resources Honduras, S.A.
As of March 31, 1998, title had transferred by agreement but had not been
officially registered with the local government.
In June, 1997, the Company paid a fee of $25,000 to Derena for the right to
do due diligence on the properties owned by Derena in Honduras. Upon
acceptability of the investigation, the Company would obtain 75% ownership of
Derena for a cash payment of US$ 250,000. Derena's minority holding of 25% would
be a "free carried interest", (i.e. not contributing to exploration,
administration and development costs, except as follows:
The Company is required to spend at least US$ 600,000 - on the properties
within 3 years. Upon this expenditure, Derena's minority free carried interest
of 25%, would convert to a participating 25% stake, with the option, by Decenna,
of reducing it to a 15% free carried interest.
Production from all properties would be subject to a 2% "Net Smelter
Royalty", payable to Decenna, Mr. Mattsson and/or his assignees and/or
successors.
45
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
For a period of 5 years from June 10, 1997, the Company have the option to
purchase Mr. Mattsson's minority interest interests, whether carried or
participatory for the sum of US$1,000,000.
Mr. Mattsson has been appointed to the Executive Advisory Board of the
Company.
As of December 31, 1997, the Company has paid $301,500 pursuant to the
terms of this agreement.
Note 4. Related Party transactions
----------------------------------
a. Issuance of Common Stock
On March 31, 1992 the Company issued 100 common shares to Mr. Roger Fidler
in consideration for $1,500 in cash and the contribution of $500 in organization
costs.
On March 13, 1995 when the Company entered into an agreement to purchase
the alluvial mineral rights in the Lagoa da Pedra Project from the Lagoa da
Pedra Partnership for 7,182,315 of the Company's common shares.
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 1,310,000 shares of common stock to various related parties to the Company in
consideration for services of $13,100 in services valued at $.0l per share.
On December 16, 1997, the Company issued ,pursuant to regulation D, 30,000
shares of common stock to 6 advisory board members in exchange for services over
a period of 1 year valued at $1,500 or $.05 per share.
b. Leased Office Space
For the year ended December 31, 1996, the Company rented office space from
its Director/Secretary rent-free on a month to month basis at 6701 Corintia
Street, Carlsbad, California 92009
c. Managerial and financial control
The Company has acquired the alluvial mineral rights in its Lagoa da Pedra
Project from the Lagoa da Pedra Partnership for 7,182,315 of the Company's
common shares. This acquisition enables the Lagoa da Pedra Partnership to have
majority managerial and financial control in the decision making process of the
Company.
As of December 31, 1996, the Company returned managerial control to the
sellers of the Lagoa da Pedra Project to the Lagoa da Pedra partnership.
46
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
d. Officer Compensation
For the period from inception, September 5, 1997, to December 31, 1997 and
for the four months ended April 30, 1998, the Company has not paid any officer
in excess of $100,000.
Note 5. Preferred Stock
-----------------------
The certificate of Incorporation was amended on January 17, 1995 increasing
the number of shares authorized from 200 common shares with a par value of$.001
to an aggregate number of shares of stock which the corporation shall have
authority to issue is 25,000,000, which are divided into 5,000,000 shares of
Preferred stock with a par value of $.001. The Preferred Shares have the
following provisions:
a. Dividends are cumulative.
Preferred shareholders are entitled to receive dividends at the rate of $.
12 per share per annum and no more, payable in cash quarterly commencing March
31, 1995 and thereafter on the last day of September, December, March and June
of each year on any Preferred series A shares ("Preferred Stock") outstanding.
Dividends that are in arrears must be paid before any distribution shall be paid
on common stock.
b. Redemption
At any time during the six year period commencing on the date of issuance,
the Company may redeem all or part of the outstanding shares of the Preferred
Stock at the redemption cash price equal to $2.50 per share, together with all
declared and unpaid dividends provided the Company gives thirty days prior to
the date specified for redemption.
c. Voting Rights
Except as otherwise required by law or by the articles of incorporation of
the Company, the shares of Preferred Stock shall have no voting rights
whatsoever.
d. Conversion Rights
Each share of Preferred Stock shall be convertible at the option of the
holder, at any time during the time period commencing 5 years from the date of
issuance and ending 6 years from the date of issuance, and on or prior to the
5th day prior to a redemption date into fully paid and nonassessable shares of
common stock of the Company. The number of shares of common stock into which
each share of the Preferred Stock may be converted shall be determined by
dividing the initially issuable conversion price of $2.50 subject to adjustment
by the conversion price in effect at the time of the conversion. The conversion
price from time to time in effect shall be subject to adjustment as follows: In
case the Company shall at any time subdivide the outstanding shares of common
stock, or shall issue a stock dividend on its outstanding common stock, the
conversion price in effect immediately prior to such subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Company
47
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
shall at any time combine the outstanding shares of common stock, the conversion
price in effect immediately prior to such combination shall be proportionately
increased, effective at the close of business on the date of such subdivision,
dividend or combination, as the case may be.
e. Contingent Liability
The Company shall at all times reserve and keep available out its
authorized but unissued common stock, solely for the purpose of effecting the
conversion of the Preferred Shares, the full number of shares of common stock
deliverable upon the conversion of all Preferred Stock from time to time
outstanding.
At December 31, 1997, the number of shares of preferred stock outstanding
was -0-.
Note 6. Mineral Properties
--------------------------
a. Cost basis
Mineral properties consist of the following at December 31, 1995:
1. The Arizona Project
This amount of $9,658 at December 31, 1997, consists of unproved concession
costs, which include the cost to purchase, and pay the maintenance and filing
fees to the state of Arizona.
The capitalized costs are allocated to the properties as follows:
December 31,
1997
----
Arizona project $29,658
2. The Minas Nova Project
This amount of $176,500 at December 31, 1997, consists of unproved
concession costs, which include the cost to purchase, and pay the maintenance
and filing fees to the state of Arizona.
The capitalized costs are allocated to the properties as follows:
December 31,
1997
----
Minas Nova project $176,500
48
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
3. The Derena Project
This amount of $301,500 at December 31, 1997, consists of unproved
concession costs, which include the cost to purchase, and pay the maintenance
and filing fees to the country of Honduras.
The capitalized costs are allocated to the properties as follows:
December 31,
1997
----
Derena project $301,500
Note 7. Marketable Securities. Available for Sale
-------------------------------------------------
The Company adopted Financial Accounting Standards Board ("FASB") Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
which requires that investments in equity securities that have readily
determinable fair values and investments in debt securities be classified in
three categories: held-to-maturity, trading and available-for-sale. Based on the
nature of the assets held by the Company and Management's investment strategy,
the Company's investments have been classified as available-for-sale. Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date.
Securities classified as available-for-sale are carried at estimated fair
value, as determined by quoted market prices, with unrealized gains and losses,
net of tax, reported in a separate component of stockholders' equity. At
December 31, 1997, the Company had no investments that were classified as
trading or held-to-maturity as defined by the Statement.
The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at December 31, 1997:
Estimated
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------
Cash $ 15,719 $ -0- $ -0- $ 15,719
Total cash and cash
equivalents $ 15,719 $ -0- $ -0- $ 15,719
-----------------------------------------------
49
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at March 31, 1998:
Estimated
Gross Gross Fair
Unrealized Unrealized Market
Cost Cost Gains Losses Value
-------------------------------------------------
Cash $ 99,786 $ -0- $ -0- $99,786
Total cash and cash
equivalents $ 99,786 $ -0- $ -0- $99,786
-------------------------------------------------
Note 8. Capital Assets
----------------------
Capital Assets consisted of the following at December 31, 1997 and March
31, 1998:
December 31, March 31,
1997 1998
---- ----
Office equipment $18,825 $18,825
Accumulated depreciation 1,335 2,275
------- -------
Balance $17,490 $16,550
Note 9. Income Taxes
--------------------
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of March 31, 1998, the Company had no
material current tax liability, deferred tax assets, or liabilities to impact on
the Company's financial position because the deferred tax asset related to the
Company's net operating loss carryforward and was fully offset by a valuation
allowance.
At March 31, 1998, the Company has net operating loss carry forwards for
income tax purposes of $1,335,924. This carryforward is available to offset
future taxable income, if any, and expires in the year 2010. The Company's
utilization of this carryforward against future taxable income may become
subject to an annual limitation due to a cumulative change in ownership of the
Company of more than 50 percent.
50
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
The components of the net deferred tax asset as of March 31, 1998 are as
follows:
Deferred tax asset:
Net operating loss carryforward $ 454,214
Valuation allowance $(454,214)
Net deferred tax asset $ -0-
The Company recognized no income tax benefit for the loss generated in the
period from inception, March 23, 1992, to December 31, 1997 and for the three
months ended March 31, 1998.
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 10. Mineral Properties Not Subject to Amortization
-------------------------------------------------------
The Company is currently participating in mineral exploration and
development activities on properties identified as the alluvial gold and diamond
placer concessions. At December 31, 1997, a determination cannot be made about
the extent of additional mineral reserves that should be classified as proved
reserves as a result of this project. Consequently, the associated property
costs and exploration costs have been excluded in computing amortization of the
full cost pool. The Company will begin to amortize these costs when the project
is evaluated, which is currently estimated to be in the Spring of 1999
Note 11. Cash Flow Information
------------------------------
The following is supplemental cash flow information for the period from
inception, March 23, 1992, to December 31, 1997.
December 31, 1997
-----------------
Issuance of 7,182,315 common shares for
Acquisition of mineral properties
On March 13, 1995 $(297,193)
Issuance of 2,000,000 shares of common
Stock for acquisition of various mining
Claims in Arizona (20,000)
Issuance of 1,310,000 shares of common
Stock in consideration for consulting service (13,100)
Issuance of 30,000 shares of common stock
For services by various Advisory Board Members (1,500)
Issuance of 250,000 shares of common stock
Pursuant to the agreement with Minas Novas (31,500)
Capital Stock 363,293
---------
Total $ -0-
51
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note 12. Commitments and Contingencies
--------------------------------------
a. Stock Option Plan and Stock Grant Program
In June 1995, the Company adopted a non-qualified stock option plan and a
stock grant program with the following provisions:
1. Stock Option Plan: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers and consultants.
Under this plan, no employee may receive more than 50,000 options. Options are
nontransferable and expire if not exercised within two years. The options may
not be exercised by the employee until after the completion of two years of
employment with the Company. The options are issuable to officers, key employees
and consultants in such amounts and prices as determined by the Board of
Directors. As of December 31, 1997, no options have been granted pursuant to
this plan.
2. Stock Grant Program: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers, directors, and
consultants. Under this plan, no employee may receive more than 100,000 options.
The program requires the employee to remain in the employ of the company for at
least one year following the grant and to agree not to engage in any activity
which would be considered in competition with the Company's business. If the
employee violates any one of these conditions the ownership of the stock issued
under the program shall revert back to the Company. The stock issued under the
program is nontransferable for two years. As of December 31, 1997, no options
have been granted pursuant to this plan.
b. Stock Repurchase Commitment
The shareholders' of Minas Novas have an option until September 30, 1998,
to require the Company to repurchase these shares at $2.00 per share for an
aggregate consideration of $500,000 by notifying the company of Mines Nova's
intention in writing by September 1, 1998 and must effect payment within 120
days. Thirty days after written notice, interest will accrue at the rate of 2%
per month.
c. Leased Office Space
On September 30, 1997, the Company entered into a 3-year lease agreement
from an unrelated party for the rental of 2,000 square feet at 4263
Sherwoodtowne Boulevard, Suite 200, Mississuaga Ontario, Canada with rent to be
paid as follows:
October 1, 1997 to September 30, 1998 $18,600 plus GST $1,550 plus GST
October 1, 1998 to September 30, 1999 $19,220 plus GST $1,602 plus GST
October 1, 1999 to September 30, 2000 $19,840 plus GST $1,653 plus GST
The Company has agreed to issue to the Landlord 12 postdated checks.
52
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
d. Leased Office Space in Honduras
On October 26, 1997, the Company through its subsidiary HRH leased for two
years approximately 630 square feet of office space in the town of La Mina o
Portrerillos for $625 per month.
e. Consulting Agreement
On November 17, 1997, the Company entered into a consulting agreement with
Loeb Mon & Company LTD., a company incorporated in England for services relating
to geology and related mining, smelting, engineering, and production of
minerals. The agreement is for two years beginning October 1, 1997 and is
extended automatically for a period of 6 months or until notice is given by
either party.
f. Options Granted to Purchase Stock
The Company granted to various people the right to purchase shares of the
Company's common stock pursuant to the following terms and conditions:
On October 2, 1997, the Company elected a new advisory board of directors
and has granted them the right to receive 5,000 shares of common stock each as
consideration for services. As of December 31, 1997, the Company issued an
aggregate of 30,000 shares of common stock in consideration for services. The 6
board members have the right to receive an aggregate of an additional 30,000
shares of common stock in consideration for services on October 1, 1998.
1. To Mr. John Demoleas, the Company has granted the right to purchase
50,000 shares of common stock from the Company for $250 or $.005 per share,
which was exercised subsequent to the date of the financial statements. Mr.
Demoleas is also granted an option for 365 days beginning December 8, 1997 to
purchase 50,000 shares of common stock at $1.00 per share with his option either
to exercise by paying in cash or through the cancellation of options having an
equivalent value to effect a cashless exercise of the share. This option is
valid only so long as Mr. Demoleas serves as Senior Vice President. If Mr.
Demoleas is terminated or resigns on or before December 8, 1998, then Mr.
Demoleas is required to return the 50,000 shares of common stock to the Company
in exchange for $250.
2. On December 2, 1997, the Company has granted Mr. Lennart Mattsson a 120
day option to purchase up to 25,000 shares of restricted common stock at $1.00
per share, which was exercised in January, 1998.
3. On December 31, 1997, the Company appointed Dr. Frank Lucas to its
executive advisory board for a two year period effective January 1, 1998 and has
granted him the right to receive 5,000 shares of common stock for services to be
issued on or before March 1, 1998 and March 1, 1999.
53
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
As of December 31, 1997, the Company has reserved an aggregate of 465,000
shares of common stock pending the exercise of these options.
g. Litigation
The Company is being sued by Mr. Douglas Furth of Aurora, Ohio for breach
of contract relating to a consulting agreement entered into on August 26, 1996.
The agreement relates to Mr. Furth performing corporate growth, public relations
and expansion of the Company's shareholder base.
Pursuant to the agreement, the Company was to issue 50,000 shares of common
stock upon signing the agreement, pay a monthly retainer of 10,000 unrestricted
shares of common stock, and pay a bonus of 50,000 unrestricted shares of common
stock when the Company's stock is trading at an average closing price of $3.00
per share for a period of 14 consecutive days; pay a bonus of 50,000
unrestricted shares of common stock when the Company's common stock is trading
at a average closing price of $4.00 per share for 14 consecutive days; pay a
bonus of 100,000 unrestricted shares of common stock when the Company's stock
trades at an average closing price of $5.00 per share for a period of 14 days;
pay a bonus of 100,000 unrestricted shares of common stock when the Company's
stock trades at an average closing price of $6.00 per share for a period of 14
days; and pay a bonus of 100,000 unrestricted shares of common stock when the
Company's stock trades at an average closing price of $7.00 per share for a
period of 14 days. Mr. Furth is seeking damages in the amount of $75,000 plus
interest and punitive damages of $1,000,000.
h. Recision of Shares of Common Stock
In November, 1997, the Company reached an agreement with the state of
Illinois to repurchase shares of common stock sold in that state during October,
1996 for an aggregate of $20,200, payable as follows: $9,500 by December 15,
1997, $10,700 by January 15, 1998. As of December 31, 1997, the Company paid the
$9,500.
Note 13. Convertible Promissory Note
------------------------------------
Subsequent to the date of the financial statements, the Company borrowed an
aggregate of $125,000 as evidenced by the following Convertible Promissory Note,
(the "Note") dated March 26, 1998 and due September 22, 1998. The Note is
payable pursuant to the following terms and conditions:
Interest is payable at the rate of 12% in advance upon the closing of the
issuance of this Note. Interest will be payable in advance in the form of the
Company's shares of common stock. The number of shares of common stock will be
computed as the interest amount on this Note through the full term of the Note
divided by 75% of the lowest bid price of the shares of common stock quoted on
the over the counter Bulletin Board market for the 5 day trading period. The
holder of this Note has the right to convert this note, in whole or in part at
any time into shares of common stock, at the lesser of 75% of the lowest closing
54
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
bid price for the shares quoted on the Bulletin Board for the 5 day trading
period ending on the day prior to the conversion date, or the lowest closing bid
price for the shares quoted on the Bulletin Board for the five day trading
period ending on the day prior to the date.
Notwithstanding any provisions of this Note, in no event will the Holder be
entitled to convert this Note into shares to the extent that after such
conversion, the number of shares of common stock beneficially owned by the
Holder and its affiliates and the number of shares issuable upon the conversion
of this Note would result in beneficial ownership and its affiliates of more
than 4.9% of the issued and outstanding shares of common stock as of the date of
the conversion.
The number of shares is also subject to various conversion price
adjustments and adjustment for reverse stock splits.
The Company has agreed to use the proceeds of this Note will be used for
working capital and not to pay any indebtedness of the Company.
The proceeds to the Company were $125,000 less commission of $15,635 with
net proceeds of $109,365.
Note 14. Development Stage Company
----------------------------------
The Company is a development stage company with little operating history.
The Company will be dependent upon its ability to raise additional capital to
engage in any business activity. Since its organization, the Company's
activities have been limited to the sale of shares common stock in connection
with its organization, the acquisition of the mineral properties, the
preparation of a marketing plan, limited pilot test production, test drillings
and samplings and completion of geological exploration.
55
<PAGE>
PART III
ITEM 1 Index to Exhibits
Exhibit 1 State of Delaware - Articles of Incorporation
Exhibit 2 State of Delaware - Amendment to Articles of Incorporation 11/02/92
Exhibit 3 State of Delaware - Amendment to Articles of Incorporation 01/18/95
Exhibit 4 State of Delaware - Amendment to Articles of Incorporation 03/28/95
Exhibit 5 State of Delaware - Amendment to Articles of Incorporation 12/03/97
Exhibit 6 Amended By Laws - Highland International Holdings, Inc.
Exhibit 7 Specimen Share Certificate
56
Exhibit 1
State of Delaware
Secretary of State
Division of Corporations
Filed 11:40AM 03/23/1992
920835118 - 2292006
ARTICLES OF INCORPORATION OF
NORTHERN MEDICAL, INC.
The undersigned incorporator(s), for the purpose of forming a corporation under
the Delaware General Corporation Law hereby adopt(s) the following Articles of
Incorporation.
The name of the corporation shall be NORTHERN MEDICAL, INC.
SHARES
The number of shares of stock that this corporation is authorized to have
outstanding at any one time is: 10,000,000 shares of common stock par value
$0.001 per share and 1,000,000 shares of preferred stock par value $0.001 per
share.
INITIAL REGISTERED AGENT AND STREET ADDRESS
The name and address of the initial registered agent is: Barres, McNamara,
Scanlon, Malkiewicz & Taylor, P.A. The registered office of the corporation is 2
West Loockerman Street Dover, Kent County, Delaware 19903.
The undersigned incorportor has executed these Articles of Incorporation this
20th day of March 1992.
Signed: R. W. Worthington, Incorporator
57
Exhibit 2
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00AM 11/02/1992
923095050 - 2292006
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
NORTHERN MEDICAL, INC.
FIRST: WHEREAS, Directors were not named in the Certificate of Incorporation of
NORTHERN MEDICAL, INC. and the corporation has not received any payment for any
of its stock, the undersigned incorporator does hereby certify and duly adopts
the following Amendment under Section 241 of Subchapter VIII of the General
Corporation Law of the State of Delaware.
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing Article I thereof, so that, as amended said Article shall
read as follows:
The name of the corporation is:
NORMED INDUSTRIES, INC.
SECOND, that said Amendment was duly adopted in accordance with the provisions
of Section 241 of Subchapter VIII of the General Corporation Law of the State of
Delaware.
THIRD, that the capital of said corporation shall not be reduced under or by
reason of said Amendment.
IN WITNESS WHEREOF, the sole incorporator has signed this Certificate this 3th
day of October 1992.
Signed by: R. W. Worthington, Incorporator
58
Exhibit 3
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00AM 01/18/1995
950013015 - 2292006
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
NORMED INDUSTRIES, INC.
A corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware
DOES HEREBY CERTIFY:
FIRST, that a meeting of the Board of Directors of NORMED INDUSTRIES, INC.
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment
advisable and calling a meeting of the shareholders of said corporation pursuant
to Delaware Code for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "Fourth" so that as amended
said Article shall be and read as follows:
"The aggregate number of shares of stock which the corporations shall have
authority to issue is twenty five million, which are divided into five million
share of Preferred Stock at a par value of one mil ($0.001) each and twenty
million shares of Common Stock a par value of one mil ($0.001)each, which shares
of stock may be issued from time to time in one or more classes or one r more
series within any class thereof, in any manner permitted by law, as determined
from time to time by the board of directors, and stated in the resolution or
resolutions providing for the issuance of such shares adopted by the board of
directors pursuant to the authority hereby vested in it each class or series to
be appropriately designated, prior to issuance of any shares thereof, by some
distinguishing letter, number designation or title. All shares of stock in such
classes or series may be issued for such consideration and have such voting
powers, full or limited, or no voting powers and shall have such designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, permitted by law, as shall
be stated and expressed in the resolution or resolutions, providing for the
issuance of such shares adopted by the board of directors pursuant to authority
hereby vested in it. The number of shares of stock of any class or series within
any class, so set forth in such resolution or resolutions may be increased but
not above the total number or authorized shares of the class or decreased but
not below the number of shares thereof then outstanding by further resolution or
resolutions adopted by the board of directors pursuant to authority hereby
vested in it."
SECOND, that thereafter, pursuant to a resolution of the Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the number of shares as required by
statute were voted in favor of the amendment.
THIRD, that said amendments were adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH, that the capital of said corporation shall not be reduced under or by
reason of said Amendment.
IN WITNESS WHEREOF, said NORMED INDUSTRIES, INC. has caused this Amendment to be
signed by its President Roger L. Fidler and its Secretary Wanda L. Billett, this
17th day of January 1995.
By: Roger L. Fidler President
Wanda L. Billett Secretary
59
Exhibit 4
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00AM 03/28/1995
950068112 - 2292006
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
NORMED INDUSTRIES, INC.
a corporation organized and existing under the laws of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST, that a meeting of the Board of Directors of NORMED INDUSTRIES, INC.
resolutions were duly adopted and filed with the Minutes of the corporation
setting forth a proposed amendment to the Certificate of Incorporation of said
corporation, declaring said amendment advisable and calling a meeting of the
shareholders of said corporation pursuant to the Delaware Code for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FIRST" so that the amended
Article shall be and read as follows: The name of the corporation name is
HIGHLAND RESOURCES, INC.
SECOND, that thereafter, pursuant to a resolution of the Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD, that said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware
FOURTH, that the capital of said corporation shall not be reduced under or by
reason of said Amendment.
IN WITNESS WHEREOF, said NORMED INDUSTRIES, INC. has caused this Amendment
to be signed by its President Roger L. Fidler and its Secretary Wanda L. Billet
this 8th day of March 1995.
Signed by: Roger L. Fidler, President
Wanda L. Billet, Secretary
60
Exhibit 5
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00AM 12/03/1997
971410420 - 2292006
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
HIGHLAND RESOURCES, INC.
HIGHLAND RESOURCES, INC. a corporation organized and existing under the laws of
the State of Delaware.
DOES HEREBY CERTIFY:
FIRST, that a meeting of the Board of Directors of HIGHLAND RESOURCES, INC.
resolutions were duly adopted and filed with the Minutes of the corporation
setting forth a proposed amendment to the Articles of Incorporation, declaring
said amendment advisable and calling a meeting of the shareholders of said
corporation pursuant to the Delaware Code for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FIRST" so that the amended
Article shall be and read as follows: The name of the corporation (hereinafter
called the "corporation") is HIGHLAND HOLDINGS INTERNATIONAL, INC.
SECOND, that thereafter, pursuant to a resolution of the Board of Directors, the
said amendment was submitted to the stockholders of said corporation and , in
lieu of a meeting and vote of stockholders, the stockholders have given written
consent to said amendment, said written consent has been filed with the
corporation, and written notice of the action will be given as provided in
Section 228 of the General Corporation Law of the State of Delaware.
THIRD, that said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware
FOURTH, that the capital of said corporation shall not be reduced under or by
reason of said Amendment.
IN WITNESS WHEREOF, said HIGHLAND RESOURCES, INC. has caused this Amendment
to be signed by Melanie Ellerton, an Authorized Officer this 20th day of October
1997.
Signed by: Melanie Ellerton, President
61
Exhibit 6
AMENDED BY LAWS
OF
HIGHLAND HOLDINGS INTERNATIONAL, INC.
ARTICLE ONE
1.01 REGISTERED OFFICE. The initial location of the principal place of business
of the corporation shall be as specified in the Articles of Incorporation and
may be changed from time to time by resolution of the Board of Directors. It may
be located at any place within or outside the State of Delaware. The registered
office of the Corporation is located at CorpAmerica, Inc. 30 Old Rudnick Lane,
Dover, DE 19901. [GCL Title 8 Chap.1 Sect. 131]
The principal place of business of the corporation shall also be known as the
principal office of the Corporation. The corporation may also have offices at
such other places as the Board of Directors may from time to time designate, or
as the business of the corporation may require.
ARTICLE TWO
2.01 SHAREHOLDERS' MEETINGS. All meetings of the shareholders shall be held at
the registered office of the Corporation, or at any other place inside or
outside the State of Delaware that the Board of Directors designates for that
purpose. [GCL Title 8 Chap. 1 Sect. 211] Annual meetings and special meetings
may be called by the directors or by any officer instructed by the directors to
call the meeting.
2.02 ANNUAL MEETING. The annual meeting of the shareholders shall be held each
year at 7:00 PM on Monday of the last week in March commencing with the year
1998 at which time the shareholders shall elect a Board of Directors and
transact any other proper business. If this day falls on a legal holiday, the
annual meeting shall be held at the same time on the next business day at the
same hour. [GCL Title 8 Chap. 1 Sect. 211]
2.03 NOTICE. Except as provided in this paragraph, written notice of each
shareholder' meeting shall be delivered to each shareholder of record entitled
to vote at the meeting. Notice shall be delivered not less than 10 days nor more
than 60 days before the date of the meeting, in accordance with Section 222,
General Corporation Law. The notice must be delivered personally or by mail, or
at the direction of the president, secretary or the persons calling the meeting.
If mailed, notice shall be deemed to be delivered when deposited in the United
States Mail. The notice shall be postage prepaid and addressed to the
shareholder at the address appearing on the Corporation's books or supplied by
the shareholder to the Corporation for the purpose of notice. If a meeting is
adjourned to another time, not more than thirty days hence, and/or to another
place, and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the adjourned
meeting. Notice need not be given to any stockholder who submits a written
waiver of notice signed by him or her before or after the time stated therein.
Attendance of a stockholder at a meeting shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
The notice of the annual meeting shall state that the meeting is called for the
election of directors and for the transaction of other business which may
properly come before the meeting, and shall (if any other action which could be
taken at a special meeting is be taken at the annual meeting) state the purpose
or purposes. The notice of a special meeting shall in all instances state the
purpose or purposes the meeting is called. The notice of any meeting shall also
include, or be accompanied by, any additional statement, information, or
documents prescribed by the General Corporation Law.
62
<PAGE>
No defect in the noticing of a shareholders' meeting will affect the validity of
any action at the meeting if a quorum was present, and if each shareholder
entitled to notice signs a written waiver of notice either before or after the
meeting. All waivers, consents, or approvals must be filed with the corporate
records or made a part of the minutes of the meeting. For a special
shareholders' meeting, the waiver of notice must state the purpose of the
meeting and the business that will be transacted at the meeting.
2.04 SPECIAL MEETINGS. Special meetings of the shareholders may be called at any
time by the Chairman, the President, any two or more directors, or one or more
shareholders holding not less than 51 percent or more of all of the outstanding
shares. A written notice of such meeting and the purpose or purposes for which
it is to be held shall be delivered to the Secretary of the Corporation. [GCL
Title 8 Chap. 1 Sect. 222]
2.05 QUORUM. Fifty One percent of the outstanding shares constitutes a quorum
for the transaction of business. Business may be continued after withdrawal of
enough shareholders to leave less than a quorum. [GCL Title 8 Chap. 1 Sect.
216]. The absence of a quorum shall not preclude the appointment of a chairman
which shall not be treated as part of the business of the meeting.
2.06 RECORD DATE FOR STOCKHOLDERS. Only persons in whose names shares appear on
the share transfer books of the corporation on the date on which notice of the
meeting is mailed shall be entitled to vote at the meeting, unless some other
date is fixed by the Board of Directors for the determination of shareholders of
record. The date shall not be less than 10 nor more than 60 days before the date
of the meeting and shall not precede the resolution fixing the record date
adopted by the Board of Directors.
2.07 VOTING. Each outstanding share, regardless of class, shall be entitled to
one vote on each matter submitted to a vote except as otherwise provided by law,
by the Articles of Incorporation or by other provisions of these bylaws. Except
with respect to elections of directors any shareholder entitled to vote may vote
part of his or her shares in favor of a proposal and refrain from voting the
remaining shares or vote them against the proposal. If a shareholder fails to
specify the number of shares he or she is affirmatively voting, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares the shareholder is entitled to vote. Save where a greater majority is
called for by Delaware Statutes or these by-laws, any question proposed for
consideration at any general or special meeting shall be decided on by a simple
majority of votes cast. All resolutions shall be decided on by a show of hands
unless a poll is called for by the chairman; or at least three Shareholders
present in person or represented by proxy; or any Shareholder or Shareholders
present in person or represented by proxy and holding between them not less than
one tenth of the total voting rights of all the Shareholders having the right to
vote at such meeting. Unless a poll is so demanded and the demand is not
withdrawn, a declaration by the Chairman that a Resolution , has on a show of
hands, been carried or carried unanimously or by a particular majority or not
carried by a particular majority or lost shall be final and conclusive, and an
entry to that effect in the minute book of the Company shall be conclusive
evidence of the fact without proof of the number of votes recorded for or
against such resolution.
The demand for a poll shall not prevent the continuance of a meeting for the
transaction of any business other than the question on which the poll has been
demanded and it may be withdrawn at any time before the close of the meeting or
the taking of the poll, whichever is earlier. On a poll, votes cast may be cast
either personally or by proxy. A person entitled to more than one vote on a poll
need not use all his votes or cast all the votes he uses in the same way. In the
case of an equality of votes at a general meeting, whether on a show of hands or
on a poll, the chairman of such meeting shall not be entitled to a second or
casting vote.
At each election of directors, shareholders shall not be entitled to cumulate
votes. Votes cast against a candidate or which are withheld shall have no
effect. Upon the demand of any shareholder made before the voting begins, the
election of directors shall be by ballot rather than by voice vote.
63
<PAGE>
2.08 CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by
one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice President, of if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his or her absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary or
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
2.09 PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meetings, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
No proxy shall be voted or acted upon after three years from its date unless
such proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and, if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the corporation
generally.
STOCKHOLDER ACTION WITHOUT MEETING. Any action that may be taken at a meeting of
the shareholders may be taken without a meeting if a consent in writing, setting
for the action that was taken, is signed by shareholders with sufficient votes
to have taken the action at a meeting at which all voting groups and shares
entitled to vote on the action were present and voted. [GCL Sect. 228].
TELEPHONIC MEETING. A meeting of the shareholders or any class thereof may be
held by means of such telephonic, electronic or other communication facilities
as permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously and participation in such a meeting
shall constitute presence in person at such meeting.
2.12 SHAREHOLDER LIST. The shareholders list arranged in alphabetical order
shall be available for inspection by any shareholder for a period of 10 days
prior to the meeting, or such shorter time as exists between the record date and
the meeting, and continuing through the meeting. The stock ledger shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by this section or the books of the corporation or to
vote at any meeting of stockholders.
2.13 INSPECTORS. The directors, in advance of any y, but need not, appoint one
or more inspectors of election to act at the meeting or any adjournment thereof.
If an inspector or inspectors are not appointed, the person presiding at the
meeting may, but need not, appoint one or more inspectors. In case any person
who may be appointed an inspector fails to appear or act, the vacancy may be
filled by appointment made by the directors in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, if any, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspectors at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares represented of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the results, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him, her or them and execute
a certificate of any fact found by him or them. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law, the provisions of
that Section shall not apply to the corporation.
ARTICLE THREE
3.01 DIRECTORS. The Directors shall act only as a board; an individual Director
shall have no power to take any actions on behalf of the Corporation unless the
action is authorized by a majority of the Directors or unless the director is
the sole director. The business and affairs of the Corporation shall be managed
by the Board of Directors, subject, however, to such limitations as are imposed
by law, the Articles of Incorporation, or by these Bylaws, with regard to
actions to be authorized or approved by the shareholders. The Board of Directors
may, by contract or otherwise, give general, or limited, or special power and
authority to the officers and employees of the Corporation to transact the
Corporation's general business or any special business, and may give powers of
attorney to agents of the Corporation to transact any special business requiring
that authorization.
64
<PAGE>
3.02 QUALIFICATIONS. Directors need not be shareholders of this Corporation or
residents of the State of Delaware and only three directors are required.
Directors shall be individuals who are 18 years of age or older.
3.03 DIRECTORS INTERESTS. A Director may hold any other office or place of
profit with the Company (except that of auditor) in conjunction with his office
of Director for such period and upon such terms as the Board my determine, and
may be paid such extra remuneration therefor (whether by way of salary,
commission, participation in profits or otherwise) as the Board may determine,
and such extra remuneration shall be in addition to any remuneration provided
for by or pursuant to any other by-laws. Subject to Delaware law any disclosure
required may be made by a general notice to the Directors by a Director or
officer declaring that he is a director or officer or has an interest in a
person and is to be regarded as interested in any transaction or arrangement
made with that person, shall be sufficient declaration of interest in relation
to any transaction or arrangement so made.
3.04 TERM. The Directors shall be elected annually by the shareholders and shall
hold office until the next succeeding annual meeting and until their successors
are elected and qualified to act as Directors.
3.05 VACANCIES. There shall be a minimum of three members on the Board of
Directors. Vacancies occurring in the Board of Directors and directorships
available because of an increase in the number of directors shall be filled by a
person elected by a majority of the members of the Board. All directors elected
by the Board shall serve until the shareholders elect a director at an annual
meeting or at a special meeting of shareholders called for that purpose.
3.06 MEETINGS. All meetings of the Board of Directors shall be held at the place
designated by a majority of the Directors or that is designated in the noticed
calling the meeting.
Regular meetings of the Board of Directors shall be held, without call or
notice, immediately following each annual meeting of the shareholders of this
Corporation, and at any other times as the Directors may determine.
Special meetings of the Board of Directors shall be called at any time, for any
purpose, by the Chairman & CEO, or if he or she is absent or unable or refuses
to act, by the President, or any two directors. Written notices of the special
meeting stating the time and, in general terms, the purpose or purposes of the
special meeting, shall be mailed, telegraphed, or personally delivered to each
Director no later than one day before the day appointed for the meeting.
3.07 QUORUM. A majority of the Directors in office shall constitute a quorum for
the transaction of business. The act of the majority of the Directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
3.08 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting, provided a
consent in writing, setting forth the action so taken, is signed by all of the
Directors and filed with the Secretary of the Corporation.
3.09 TELEPHONIC MEETINGS. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken by telephonic conversation
subject only to the fact that each and every director is able to listen to and
to speak directly to every other director no matter where situated.
3.10 ADJOURNMENT. A quorum of the Directors may adjourn any Directors' meeting
to meet again at a stated day and hour. Notice of the time and place of
reconvening the meeting need not be given to absent Directors if the time and
place is fixed at the meeting that is adjourned. In the absence of a quorum, a
majority of the Directors present at any Directors' meeting, either regular or
special, any adjourn until the time fixed for the next regular meeting of the
Board.
3.11 COMPENSATION. Directors and members of committees may receive compensation
for their services and reimbursement for their expenses as determined by
resolution of the Board.
65
<PAGE>
3.12 A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken shall be
deemed to have assented to the action taken unless:
1. The Director votes against or abstains from the action taken, or;
2. The Director objects at the beginning of the meeting or promptly upon
the director's arrival to holding the meeting or transacting specified
business at the meeting.
3.13 REMOVAL. Unless the Articles of Incorporation provide that a director may
only be removed for cause, at a meeting of shareholders called expressly for
that purpose, one or more directors may be removed with or without cause, if the
number of votes cast to remove the director exceeds the number of votes not to
remove the director. The Director or Directors to be removed shall be heard at
that meeting if they so request.
3.14 EXECUTIVE COMMITTTEE. The Board of Directors may, by resolution adopted by
a majority of the authorized number of directors, designate from its members an
executive committee and one or more other committees each of which to the extent
provided in such resolution, the articles of incorporation or these bylaws shall
have and may exercise the authority of the Board of Directors, except that no
such committee shall have the authority to:
1. Approve or recommend to shareholders actions or proposals required by
law to be approved by shareholders.
2. Fill vacancies on the Board of Directors or any committee thereof with
the exception of any authority the delegation of which is prohibited by
Section 141 of the General Corporation Law.
3. Adopt, amend or repeal the bylaws.
4. Authorize or approve the reacquisition of shares unless pursuant to a
general formula or method specified by the Board of Directors.
Each such committee shall have two or more members who serve at the pleasure of
the Board of Directors. The Board, by resolution adopted by a majority of the
authorized number of directors may designate one or more directors as alternate
members of any such committee who may act in the place and stead of any absent
member or members at any meeting of such committees.
ARTICLE FOUR
4.01 OFFICERS. The Officers of the Corporation shall consist of a President, a
Vice President, a Secretary, a Treasurer, and such other officers and assistant
officers as the Board of Directors shall from time to time determine. Any two
offices, except President and Secretary, may be held by the same person unless
there is only one officer in the Corporation. Each officer shall have the
authority and shall perform the duties set forth in these bylaws and to the
extent consistent with these bylaws shall have such duties and powers as may be
determined by the Board of Directors. [GCL Title 8 Chap. 1 Section 142] All
officers shall be elected by and hold office at the pleasure of the Board of
Directors, which shall fix the compensation and tenure of all officers. An
election or appointment of an officer shall not itself create contract rights.
4.02 POWERS AND DUTIES. The officers of the Corporation shall have such powers
and duties as may from time to time be determined by resolution of the Board of
Directors.
4.03 RESIGNATION OR REMOVAL. An officer may resign at any time by delivering
notice to the corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date. If a resignation
is made effective at a later date, the Board of Director may fill the pending
vacancy before the effective date if the Board provides that the successor does
not take office until the effective date.
The Board of Directors may remove any officer at any time with or without cause.
Any officer or assistant officer, if appointed by another officer, may likewise
be removed by such officer.
An officer's removal shall not affect the officer's contract rights, if any,
with the corporation. An officer's resignation shall not affect the
corporation's contract rights, if any, with the officer.
66
<PAGE>
4.04 PRESIDENT. The office of President shall be the chief executive officer and
general manager of the corporation and shall be subject to the direction and
control of the Board of Directors, have general supervision, direction and
control of the business and affairs of the corporation. He shall preside at all
meetings of the shareholders if present thereat and be n ex-officio member of
all the standing committees, including the executive committee, if any, and
shall have the general powers and duties of management usually vested in the
office of the president of a corporation.
In the absence or disability of the president, the vice president, if any, shall
perform all the duties of the president and, when so acting, shall have all the
powers of, and be subject to all the restrictions imposed upon the president.
4.05 SECRETARY. The Secretary shall be responsible for preparing or causing to
be prepared, minutes of all meetings of directors and shareholders and for
authenticating records of the corporation.
The Secretary shall keep or cause to be kept, at the principal place of business
of the Corporation, minutes of all meetings of the shareholders or the Board of
Directors; a record of all actions taken by the shareholders or the Board of
Directors without a meeting for the past three years; and a record of all
actions taken by a committee of the Board of Directors in place of the Board of
Directors on behalf of the corporation.
Minutes of Meetings shall state the date, time and place of the meeting; whether
regular or special; how called or authorized; the notice thereof given or the
waivers of notice received; the names of those present at director's meetings;
the number of shares present or represented at shareholders' meetings; and an
account of the proceedings thereof.
The Secretary shall maintain, at the principal place of business of the
corporation, a record of its shareholders, showing the names of the shareholders
and their addresses, the number, class, and series, if any, held by each, the
number and date of certificates issued for share, and the number and date of
cancellation of every certificate surrendered for cancellation. [GCL Title 8
Chap.1 Sect. 219]
The Secretary shall make sure that the following papers and reports are included
in the secretary's records kept at the principal place of business of the
corporation.
1. The articles of Incorporation or restated articles and all amendments to
them currently in effect;
2. The bylaws or restated bylaws and all amendments to them currently in
effect;
3. Resolutions adopted by the Board of Directors creating one or more
classes or series of shares and fixing their relative rights, preferences
and limitations, if shares issued pursuant to those resolutions are
outstanding;
4. Minutes of all shareholder's and records of all action taken by
shareholders without a meeting for the past three years;
5. Written communications to all shareholders general or all shareholders
of a class or series within the past three years including the financial
statements furnished for the past three years under Article VIII, Section
8.01 of these bylaws; and
6. A list of names and business street addresses of current directors and
officers.
The Secretary shall give, or cause to be given, notice of all meetings of
shareholders and directors required to be given by law or by the provisions of
these bylaws.
The Secretary shall have charge of the seal of the corporation.
In the absence or disability of the secretary, the assistant secretary, or if
there is none or more than one, the assistant secretary designated by the Board
of Directors, shall have all the powers of, and be subject to all the
restrictions imposed upon the Secretary.
4.06. TREASURER. The Treasurer shall have custody of the funds and securities of
the corporation and shall keep and maintain, or cause to be kept and maintained,
at the principal business office of the corporation, adequate and correct books
and records of accounts of the income, expenses, assets, liabilities, properties
and business transactions of the corporation.
67
<PAGE>
The Treasurer shall prepare or cause to be prepared, and shall furnish to
shareholders, the annual financial statements and other reports required
pursuant to Article VIII Section 8.04 of these bylaws.
The Treasurer shall deposit moneys and other valuables in the name and to the
credit of the corporation with such depositories as may be designated by the
Board of Directors. the Treasurer shall disburse the funds of the Corporation in
payment of the just demands against the corporation as authorized by the Board
of Directors and shall render to the president and directors, whenever requested
an account of all his or her transactions as treasurer and of the financial
condition of the corporation.
In the absence or disability of the treasure, the assistant treasurer, if any,
shall perform all the duties of the treasurer and, when so acting, shall have
all the powers of and be subject to all the restrictions imposed upon the
treasurer.
4.07 COMPENSATION. The officers of this corporation shall receive such
compensation for their services as may be fixed by resolution of the board of
directors.
ARTICLE FIVE
5.01 DIVIDENDS. The Board of Directors may authorize and the corporation may
make, dividends on its shares in cash, property or its own shares and other
distributions to its shareholders, subject to any restrictions contained in the
articles of incorporation, to the requirements of sections 170 of the General
Corporation Law, and to all applicable provisions of law.
5.02 RESERVES. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks proper
as reserves which shall, at the discretion of the Board, be applicable for any
purpose of the Company and pending such application may, also at such
discretion, either be employed in the business of the Company or be invested in
such investments as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any sums which it may
think it prudent not to distribute.
5.04 RECORD DATES. Notwithstanding any other provisions of these by-laws, the
Company may by Resolution or the Board may fix any date as the record date for
any dividend, distribution, allotment or issue. Any such record date may be on
or at any time before or after any date on which such dividend, distribution,
allotment or issue is declared, paid or made or such notice is sent.
ARTICLE SIX
6.01 ISSUANCE AND TRANSFER OF SHARES. Certificates for share of the Corporation
shall be issued only when fully paid.
6.02 CERTIFICATES. The Corporation shall deliver certificates representing all
shares to which shareholders are entitled. These certificates shall be in a form
as the Board of Directors may provide, except as provided in this Paragraph
6.02. Each certificate shall bear on its face the statement that the corporation
is organized under the laws of the State of Delaware, the name of the registered
holder, the number and class of shares and the designation of the series, if
any, and the par value or a statement that the shares are without par value. The
certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary, whose signatures may be in facsimile if the
certificates are to be signed by a transfer agent or registrar, and the seal of
the Corporation shall be affixed to the certificates. [GCL Title 8 Chap. 1 Sect.
158] All certificates for shares shall be consecutively numbered. The
certificates shall contain on the faces or backs such recitations or references
as are required by law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
No new certificates shall be issued until the former certificates for the shares
represented by it has been surrendered and canceled. However, in the case of
lost, stolen or destroyed certificates, the Board of Directors may order new
certificates to be issued on such terms, conditions, and guarantees as the Board
may see fit to impose to give the corporation a bond sufficient to indemnify the
corporation against any claim that might be against it on account of the alleged
loss, theft, or destruction of any such certificate or the issuance of any new
certificate or uncertificated shares.
6.03 SHARE RIGHTS. Subject to any special rights conferred on the holders of any
share or class of shares, any share in the Company may be issued with or have
attached thereto such preferred, deferred, qualified or other special rights or
such restrictions, whether in regard to dividend, voting, return of capital
otherwise, as the Company may by Resolution determine or, if there has not been
any such determination or so far as the same shall not make specific provision,
as the Board may determine.
68
<PAGE>
6.04 STOCK TRANSFERS. Shares of the Corporation may be transferred by
endorsement by the signature of the owner or his agent, attorney, or legal
representative, and the delivery and surrender of the certificate to the
corporation or its transfer agent and the payment of all taxes due thereon. The
transferee in any transfer of Shares shall be deemed to have full notice of, and
to consent to, the By Laws of the Corporation to the same extent as if he or she
had signed a written consent to the By Laws.
6.05 UNCERTIFICATED SHARES. Subject to any conditions imposed by the General
Corporation Law, the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
6.06 FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be required
to, issue fractions of a share. If the corporation does not issue fractions of a
share, it shall (1) arrange for the disposition of fractional interests by those
entitled thereto, (2) pay in cash the fair value of fractions of a share as of
the time when those entitled to receive such a fraction are determined, or (3)
issue scrip or warrants in registered form (either represented by a certificate
or uncertificated) or bearer form (represented by a certificate) which shall
entitle the holder to receive a full share upon the surrender of such scrip or
warrants aggregating a full share. A certificate of a fractional share or an
uncertificated fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon and to participate in any of the assets of the
corporation in the event of liquidation. The board of directors may cause scrip
or warrants to be issued subject to the shares or uncertificated full shares for
a specified date, or subject to the conditions that the shares for which scrip
or warrants are exchangeable may be sold by the corporation and the proceeds
distributed to the holder of scrip or warrants, or subject to any other
conditions which the Board of directors may impose.
ARTICLE SEVEN
7.01 FISCAL YEAR. The fiscal year of the corporation shall be fixed and shall be
subject to change by the board of directors.
ARTICLE EIGHT
8.01 RECORDS AND REPORTS. All books and records provided for by statute shall be
open to inspection of the shareholders from time to time and to the extent
expressly provided by statute, and not otherwise. The Directors may examine such
books and records at all reasonable time.
8.02 CLOSING OF TRANSFER BOOKS. The Board of Directors may close the transfer
books at their discretion for a period not exceeding 60 days preceding any
annual or special meeting of the Shareholders or the day appointed for the
payment of a dividend. A written or printed notice of the closing of the
transfer books shall be mailed at least 10 days before the closing to each
shareholder of record at the address appearing on the records of the Corporation
or supplied by the Shareholder for the purpose of notice.
8.03 REPORT TO DEPARTMENT OF STATE. The Corporation shall prepare and deliver an
annual report form to the Department of State each year within the time limits
imposed, and containing the information required by of the General Corporation
Law.
8.04 ANNUAL REPORT. The Corporation shall mail to each shareholder, unless
modified by resolution of the shareholders, within 120 days of the close of each
fiscal year, its annual financial statements which may be consolidated or
combined statements of the corporation and one or more of its subsidiaries, as
appropriate, that include a balance sheet as of the end of the fiscal year, an
income statement for that year, and a statement of cash flow for that year. If
financial statements are prepared on the basis of generally accepted accounting
principles the annual statements must also be prepared on that basis. Save and
to the extent an audit is waived the company shall appoint auditors at the
annual general meeting or at the meeting of directors prior to the end of the
first year of business.
8.05 INSPECTION BY SHAREHOLDERS. Subject only to section 8.02 above the share
register shall be open to inspection and copying by any shareholder or holder of
a voting trust certificate at any time during usual business hours upon written
demand on the corporation, for a purpose reasonably related to such holder's
interest as a shareholder or holder of a voting trust certificate. Such
inspection and copying under this section may be made in person or by agent or
attorney.
69
<PAGE>
The accounting books and records of the corporation and the minutes of
proceedings of the shareholders and the board and committees of the board shall
be open to inspection upon the written demand of the corporation by any
shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for any purpose reasonably related to such holder's
interests as a shareholder or as the holder of such voting trust certificate.
Such inspection by a shareholder or holder of voting trust certificate may be
made in person or by an agent or attorney, and the right of inspection includes
the right to copy and make extracts at the shareholder's expense.
Shareholders shall also have the right to inspect the original or copy of these
bylaws, as amended to date and kept at the corporation's principal executive
office, at all reasonable times during business hours.
8.06 INSPECTION BY DIRECTORS. Every Director shall have the absolute right at
any reasonable time to inspect and copy all books, records, and documents of
every kind and to inspect the physical properties of the corporation, domestic
or foreign. Such inspection by a director may be made in person or by agent or
attorney. The right of inspection includes the right to copy and make extracts
at the expense of the corporation.
ARTICLE NINE
9.01 AMENDMENT OF BY LAWS. The power to make, alter, amend, or repeal the By
Laws is vested in the Board of Directors, except to the extent that such power
is reserved to the shareholders by statute.
9.02 The shareholders may amend or repeal these bylaws even though the bylaws
may also be amended or repealed by the Board of Directors.
ARTICLE TEN
10.01 AMENDMENT OF THE ARTICLES OF INCORPORATION. The Board of Directors may
propose one or more amendments to the articles of incorporation for submission
to the shareholders. For the amendment to be effective:
1. The Board of Directors must recommend the amendment to the shareholders,
unless the directors determine that because of conflict of interest or
other special circumstances it should make no recommendation and
communicates the basis for its determination to these shareholders with the
amendment, and;
2. The shareholders entitled to vote on the amendment must approve the
amendment as provided below.
The Board of Directors may condition its submission of the proposed
amendment to the shareholders on any basis. The shareholders shall approve
amendments to the Articles of Incorporation by the vote of a majority of
the votes entitled to cast on the amendment, except as may otherwise be
provided by the articles of incorporation, General Corporation Law Title 8
Chap. 1 Sect. 2442 and other applicable provisions of law, and these
bylaws.
The corporation shall notify each shareholder whether or not entitled to
vote of the proposed shareholders meeting to amend the articles of
incorporation in accordance with Article II of these bylaws. The notice of
meeting must state that the purpose or one of the purposes of the meeting
is to consider the proposed amendment and contain or be accompanied by a
copy or summary of the amendment.
ARTICLE ELEVEN
11.01 LIMITATION OF DIRECTOR'S LIABILITY. The corporation may indemnify any
Director, officer, agent or employee as to liabilities as provided in the
General Corporation Law Title 8 Chap. 1 Section 145. The Directors as far as
permissible under Delaware Code are without personal liability for actions taken
on behalf of the Corporation which are consistent with the purposes of the
Corporation and the laws of the State of Delaware and the United States of
America.
The Corporation may make any other or further indemnification or advancement of
expenses of any of its directors, officers, employees, or agents, under any
bylaw, agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in the person's official capacity and as to action in another
capacity while holding such office.
70
<PAGE>
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation against any liability asserted against the person and incurred
by the person in any such capacity or arising out of the person's status as such
whether or not the corporation would have the power to indemnify the person
against such liability under provisions of the law. [GCL Title8 Chap. 1 Sect.
145].
I CERTIFY THAT THE FOREGOING ARE THE TRUE AND CORRECT AMENDED BYLAWS OF HIGHLAND
HOLDINGS INTERNATIONAL, INC. a DELAWARE CORPORATION.
DATED: MARCH 1, 1998
/s/_______________________
SECRETARY
71
Exhibit 7
SPECIMEN SHARE CERTIFICATE
--------------------------
HIGHLAND HOLDINGS INTERNATIONAL, INC.
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
AUTHORIZED 20,000,000 COMMON SHARES
See Reverse Side for Certain Definitions
CUSIP 4301334 20 5
This Certifies That__________________________________________
is the owner of ________________________________________________________________
fully paid and non-assessable Common Shares of
HIGHLAND HOLDINGS INTERNATIONAL, INC.
Transferable only on the books of the Company by the holder hereof in person or
by duly authorized attorney upon the surrender of the Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to all the provisions of the Articles of Incorporation, to all
of which the holder by acceptance hereby assents.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
facsimile by its duly authorized officers and the facsimile seal of the Company
to be duly affixed hereto.
This Certificate is not valid unless duly countersigned by the Transfer Agent
and Registrar.
Dated:
__________________________ (seal) ________________________
Secretary President
72
<PAGE>
Part III
In accordance with Section 12 of the Securities Act of 1934, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Highland Holdings International, Inc.
Registrant
By: /s/ John Demoleas
---------------------
Date: December 2, 1999 John Demoleas, President
