UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________to__________
Commission file number 000-28461
HIGHLAND HOLDINGS INTERNATIONAL, INC.
----------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0179679
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6227 Highway 393
Crestview, Florida 325399
--------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Issuer's telephone number (905) 812-9088
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 30, 2000 there were
14,684,897 shares of common stock outstanding.
Transitional Small business Disclosure Format (check one): Yes No X .
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page No.
--------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet September 30,2000 3
Income Statements for the Quarter ended September 30, 2000
and Comparison to September 30, 1999 and for the Year Ended
December 31, 1999. 4
Statements of Cash Flows for the Period ended September 30,
2000 and September 30, 1999 and Year Ended December 31, 1999 5
Statement of Stockholder Equity for the Period ended
September 30, 2000 and Prior Periods 6-7
Notes to the Financial Statements 8-22
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 23-29
Schedule 30
PART 2. OTHER INFORMATION
None
2
<PAGE>
<TABLE>
<CAPTION>
PART 1 Item 1.
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2000 1999
----------- -----------
Unaudited
Assets
<S> <C> <C>
Current assets
Cash $ 2,341 $ 5,678
Investments 1,497 31,375
Prepaid expenses 1,104 1,104
----------- -----------
Total current assets 4,942 38,157
Furniture and fixtures-net 2,658 2,658
Total assets $ 7,600 $ 40,815
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 19,986 $ 22,412
Officer loan payable 127,712 50,000
Contract payable 103,000 103,000
----------- -----------
Total liabilities 250,698 175,412
Stockholders equity
Preferred stock - $.001 par value, authorized
5,000,000 shares. The number of shares outstanding
at September 30, 2000 was -0-
Capital stock - $.001 par value, authorized
20,000,000 shares. The number of shares outstanding
at September 30, 2000 was 14,684,581 14,685 14,685
Additional paid in capital 1,984,354 1,984,354
Currency translation adjustment 5,982 5,982
Accumulated deficit during development stage (2,248,119) (2,139,618)
----------- -----------
Total stockholders equity (243,098) (134,597)
----------- -----------
Total liabilities and stockholders equity $ 7,600 $ 40,815
=========== ===========
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period
For the For the from inception,
period ended Period ended March 23, 1992 to
September 30, 1999 September 30, 2000 September 30, 2000
------------------ ------------------ ------------------
Unaudited Unaudited Unaudited
<S> <C> <C> <C>
Income $ 0 $ 0 $ 0
Cost of goods sold 0 0 0
------------ ------------ ------------
Gross profit 0 0 0
Operations:
General and administration 20,870 35,488 868,164
Exploration 97,648 59,506 765,375
Non cash compensation, consulting fees 0 0 125,500
Non cash payment for mining interests 0 0 408,363
Depreciation and amortization 0 0 4,533
------------ ------------ ------------
Total expense 124,065 94,994 2,152,603
Loss from continuing operations (124,065) (94,994) (2,171,935)
Other income and loss
Gain on sale of securities 0 (13,286) (11,086)
Interest expense 8,927 (221) (65,098)
------------ ------------ ------------
Total other income and expenses (8,927) (13,507) (76,184)
Net Profit (Loss) from operations $ (139,992) $ (108,501) $ (2,248,119)
============ ============ ============
Net loss per share-basic $ (0.02) $ (0.01)
============ ============
Weighted average number of shares outstanding 5,684,898 14,684,581
============ ============
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from
For the For the inception,
period ended period ended March 23, 1992, to
September 30, September 30, September 30, 2000
1999 2000 Unaudited
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $ (139,992) $ (108,501) $(2,248,119)
Add items not affecting cash
Non cash - forgiveness of debt 0 0 147,376
Depreciation and amortization 0 0 4,533
Issuance of common stock for consulting fees 0 0 125,500
Issuance of common stock for the Lagoa da Pedra properties 293,197
Issuance of common stock for the acquisition of Arizona properties 100,000
Issuance of common stock for the acquisition of Minas Novas 0 0 105,556
Interest expense 0 0 65,098
Changes in non-cash operating accounts
Prepaid expenses 5,179 0 (1,104)
Accounts payable 2,104 (2,426) 19,986
----------- ----------- -----------
TOTAL CASH FLOWS FROM OPERATIONS (132,709) (110,927) (1,387,977)
CASH FLOWS FROM FINANCING ACTIVITIES
Officer loan payable 0 77,712 127,712
Contract payable 0 0 103,000
Proceeds of convertible note 0 0 109,365
Currency translation adjustment 0 0 5,982
Sale of stock-net of offering costs 120,301 0 1,053,168
----------- ----------- -----------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 120,301 77,712 1,399,227
CASH FLOWS FROM INVESTING ACTIVITIES
Marketable securities 0 29,878 (1,497)
Office equipment (1,241) 0 (7,191)
----------- ----------- -----------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (1,241) (29,878) (8,688)
-----------
NET INCREASE (DECREASE) IN CASH (13,649) (3,337) 2,341
CASH BALANCE BEGINNING OF PERIOD 20,198 5,678 -0-
----------- ----------- -----------
CASH BALANCE END OF PERIOD $ 6,549 $ 2,341 $ 2,341
=========== =========== ===========
See accompanying notes to financial statements
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Deficit
accumulated
Additional during Currency
Common Common paid in exploration translation
Date Stock Stock capital stage adjustment Total
---- ----- ----- ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
03-13-1992 8,333 8 $ 1,992 $ 2,000
Net loss (1,800) (1,800)
----------- -----------
12-31-1994 8,333 8 1,992 (1,800) 200
Issuance of stock for acquisition 34,202 34 293,163 293,197
additional capital contribution 27,000 27,000
Currency translation adjustment
Net loss (30,050) (30,050)
----------- -----------
12-31-1995 42,535 42 322,155 (31,850) 290,347
Issuance of shares for 10,057 10 147,366 147,376
forgiveness of loans
Issuance of shares for acquisition 2,971 3 43,053 43,056
Currency translation adjustment
Net loss (845,629) (845,629)
----------- -----------
12-31-1996 55,563 55 512,574 (877,479) (364,850)
Issuance of shares for acquisition 285,714 286 99,714 100,000
Issuance of shares for consulting
services 187,143 187 65,313 65,500
Sale of shares 42,857 43 14,957 15,000
Sale of shares 257,143 257 89,743 90,000
Issuance of shares for acquisition 35,714 36 62,464 62,500
Issuance of shares to Advisory Board 4,286 4 1,496 1,500
Sale of shares 75,000 75 524,925 525,000
Currency translation adjustment 8,621 8,621
Net loss (1,093,679) (1,093,679)
----------- -----------
12-31-1997 943,420 943 1,371,186 (1,971,158) 8,621 (590,408)
Issuance in consideration for
consulting fees 40,000 40 28,460 28,500
Issuance of shares for conversion
of debt 1,018,584 1,019 99,981 101,000
Sale of shares through private
placement 604,761 605 155,395 156,000
Sale of shares 340,000 340 33,660 34,000
Sale of shares through private
placement 2,738,133 2,738 79,406 82,144
Beneficial conversion feature on loans 41,248 41,248
Foreign currency translation (940) (940)
Net loss (56,445) (56,445)
----------- -----------
Table continues on following page
See accompanying notes to financial statements
6
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Deficit
accumulated
Additional during Currency
Common Common paid in exploration translation
Date Stock Stock capital stage adjustment Total
---- ----- ----- ------- ----- ---------- -----
12-31-1998 5,684,898 $ 5,685 $ 1,809,336 (2,027,603) 7,681 (204,901)
Capital contribution 8,024 8,024
Sale of shares through private
placement 7,600,000 7,600 106,400 114,000
Issuance of shares for conversion
of debt 799,683 800 23,200 24,000
Issuance of shares for consulting fees 600,000 600 29,400 30,000
Beneficial conversion feature on loans 7,994 7,994
Currency translation adjustment (1,699) (1,699)
Net loss (112,015) (112,015)
----------- -----------
12-31-1999 14,684,581 $ 14,685 $ 1,984,354 $(2,139,618) $ 5,982 (134,597)
Net loss (108,501) (108,501)
----------- -----------
09-30-2000 14,684,581 $ 14,685 $ 1,984,354 $(2,248,119) $ 5,982 (243,098)
=========== =========== =========== =========== =========== ===========
All shares issuance reflect a 17,500 forward split on January 24, 1995; a 30 to 1 reverse split on April 4, 1997 and a 7 to 1
reverse split on July 1, 1998.
See accompanying notes to financial statements
7
</TABLE>
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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 an exploration stage company involved in the acquiring and
development of a gold mining concession in Honduras. At the report date mineral
claims, with unknown reserves, had been acquired. 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
All shares issued reflect a 17,500 forward split on January 24, 1995; a 30
to 1 reverse split on April 4, 1997 and a 7 to 1 reverse split on July 1, 1998
and such the per share amounts have been adjusted to reflected the adjusted
number of shares.
On March 31, 1992, the Company issued 8,333 shares of common stock to Mr.
Roger Fidler in consideration for the contribution of $1,500 in cash and $500 in
organization costs or $0.24 per share.
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 34,202 shares of common stock with an aggregate
consideration of $293,197 or $8.57 per share.
On September 11, 1996, the Company issued 10,057 shares of common stock in
consideration for the forgiveness of $147,376 in loans to the Company or $14.65
per share.
On September 11, 1996, the Company issued 2,971 shares of common stock as
part consideration in the acquisition of Minas Novas valued at an aggregate
consideration of $43,056 or $14.49 per share.
8
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 285,714 shares of common stock to various parties in consideration for the
purchase of 18 unpatented mining claims situated in Pima County, Arizona, valued
at $100,000 or $.35 per share.
On May 5, 1997, the Company issued, pursuant to Regulation D, and aggregate
of 187,143 shares of common stock to various related parties to the Company in
consideration of consulting services valued at $65,500 in services or $.35 per
share.
On May 30, 1997, the Company sold 42,857 shares of common stock pursuant to
Rule 504 for an aggregate consideration of $15,000 or $.35 per share.
As of June 30, 1997, the Company sold 257,143 shares of common stock,
pursuant to a private placement under "Rule 504" of the Securities Act of 1933,
as amended, for an aggregate consideration of $90,000 or $$.35.
On December 16, 1997, the Company issued 35,714 shares of common stock for
an aggregate consideration of $62,500 pursuant to the agreement with Minas Novas
Pesquisa E. Lavra S.A. to three individuals named in the agreement as follows:
19,643 shares to Friedrich Ewald Ronger, 12,500 shares to Victor Eugenio Suckau
and 3,571 shares to Lothar Wirth for an aggregate consideration of $62,500 or
$1.75 per share.
On December 16, 1997, the Company issued 4,286 shares of common stock to 6
advisory board members in exchange for services over a period of 1 year valued
at $1,500 or $0.35 per share.
On December 16, 1997, the Company sold 75,000 shares pursuant to Regulation
D for an aggregate consideration of $525,000 or $7.00 per share.
During the year 1998 the Company issued 40,000 shares of common stock to
various individuals in consideration of consulting services valued in the
aggregate at $28,500 or for an average price of $0.71 per share.
During the year 1998, the Company issued an aggregate of 340,000 shares of
common stock for an aggregate consideration of $34,000 in consulting fees or an
average of $.10 per share.
During 1998, the Company issued 1,018,584 shares of common stock through
the initial sale of $101,000 in convertible debt that was converted into shares
of common stock during the year at an average conversion price of $.10 per
share.
The Company sold an aggregate of 604,761 shares of common stock in
consideration for $156,000 through the completion of a private placement at $.26
per share.
9
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
The Company sold an aggregate of 2,738,133 shares for an aggregate
consideration of $82,144 through the completion of a private placement at $.03
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 an aggregate of 7,300,000 shares
of common stock for an aggregate of $104,000 or an average value of $0.014 per
share to Mr. John Demoleas, President.
As of September 30, 1999, the Company issued an aggregate of 600,000 shares
of common stock in consideration of consulting fees valued at an aggregate of
$30,000 or $.05 per share.
In December, 1999, the Company converted the balance due Cadence Capital
into 799,683 shares of common stock for $24,000 of debt or $0.03 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 $2,248,119 for the period from inception, March 23, 1992,
to September 30, 2000. 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 September 30, 2000 and the unaudited balance sheet as
at September 30, 2000 and the related consolidated statements of operations,
stockholders equity and cash flows for the period ending September 30, 1999 and
the year ended December 31, 1999 and the related, unaudited consolidated
statements of operations, stockholders equity and cash flows for the period from
inception, March 23, 1992, to September 30, 1999.
10
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
c. Investments
The Company's investments are classified as trading securities and are
carried at fair market value with the realized and unrealized losses carried in
operations.
d. Exploration Costs
Cost of acquisition, exploration, carrying, and retained unproven
properties are expensed as incurred. Cost incurred in proving and developing a
property ready for production are capitalized and amortized over the life of the
mineral deposit or over a shorter period if the property is shown to have an
impairment in value.
e. Environmental Requirements
At the report date environmental requirements related to the mineral claims
acquired are unknown and therefore an estimate of any future cost cannot be
made.
f. 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 betterment's are capitalized.
g. Revenue Recognition
Revenue is recognized when extracted minerals are shipped.
h. Foreign Currency Translation
The U.S. dollar amounts presented have been translated from the Brazilian,
Honduras and Canada currency amounts in accordance with he criteria set forth in
Statement of Financial Accounting Standards 52 (SFAS 52) as applicable to the
accounts and transactions of a company operating in the currency of a country
with a non-highly inflationary economy. As of July 01, 1997, the three years
cumulative rate of inflation in Brazil, Honduras and Canada was less than 100%
and the entity's functional currency became the Brazilian real, Honduars lempira
and the Canadian dollar, the currency of the primary economic environment in
which the Company operates. As the reporting currency is the U.S. dollar, the
following criteria for the translation of Brazilian reais, Honduras lempira and
Canadian dollars to U.S. dollars was applied to the local currency basis
financial statements according to SFAS 52.
Assets and liabilities were translated by using the exchange rate at the
balance sheet date;
Revenues, expenses, gains, losses were translated by using the weighted
average exchange rate for the period from January 1, to September 30, 2000.
11
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
The translation loss for the period from January 1, to September 30, 2000
was reported separately as a component of shareholder's Equity (as a CTA
-cumulative translation adjustment); The capital account in Shareholder's equity
was translated by using the historical exchange rate.
i. 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.
j. 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.
k. Asset Impairment
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT 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.
l. Earnings per share
Basic earnings per share are calculated on the basis of the weighted
average number of common shares outstanding for each period.
Note 3 - Acquisition of Assets
------------------------------
The following claims have not been proven to have a commercial minable ore
reserve and therefore all costs for exploration and retaining the properties
have been expensed
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 located on the
Jequitinhonha river, near Diamantina, Minas Gerais, Brazil from the Lagoa da
Pedra Partnership (the "Partnership") for 34,202 shares of common stock. The
partnership consisted of Charles Stetler, a geologist (owning 12.5% of the
Partnership), Jose Lourenco Viana Neto ("Viana") (owning 12.5% of the
Partnership), Enterprise Gold Limited,a partnership located in Monaco (owning
50% of the Partnership) and Perth Limited of the British Virgin Islands (owning
12
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
25% of the Partnership). Charles Stetler and Viana are experienced in the mining
industry in Brazil and will manage the operations in Brazil and EGL and Perth
are investors with international business affiliations that assisted in the
corporate development of the operation. The transaction has been accounted for
as a reverse merger and is accounted for at historical cost as if a pooling of
interests had occurred with the recording of the net assets acquired at their
historical book value. The financial statements of the Company have been
retroactively restated to include the combined statements of operations and cash
flows for the period from inception, March 22, 1992, to March 13, 1995 and the
statements of operations and cash flows of Lagoa da Pedra Partnership for the
period March 13, 1995. The aggregate moneys spent on the project to date
represent $293,197.
The contract for purchase required a payment of $30,000 with a down payment
of $5,000 which was paid on May 10, 1993 by the Lagoa da Pedra Partnership and
the balance of $25,000 to be paid by December 31, 1996 by the Loagoa da Pedra
Partnership. The terms of the agreement were modified on various occasions to
extend the time required to pay the balance of $25,000.
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 for a
purchase price of $380,000.
On September 1, 1997, the agreement was modified as to the terms and
conditions as follows:
The Company was given recognition of the $15,000 paid pursuant to the
original agreement on June 27, 1996.
On September 11, 1996, the Company issued an aggregate of 2,971 shares of
restricted common stock as part consideration in the acquisition of Minas Novas
and to extend the deadline for the payment of the purchase price of the mineral
property. These shares were subsequently restated to 2,971 upon the reverse
split of the Company's stock. The shares were issued as restricted stock and
valued at $0.21 per share.
On December 16, 1997, the Company issued an additional 35,714 shares of
common stock pursuant to the agreement with Minas Novas to three individuals
named in the agreement as follows: 19,643 shares to Friedrich Ewald Renger,
12,500 shares to Victor Eugenio Suckau and 3,571 shares to Lothar Wirth. These
shares were issued as a further inducement to extend the deadline for the
payment of the purchase price of the mineral property and as additional
consideration and collateral for the consummation of this purchase agreement.
The shares of common stock were issued as restricted stock and were valued at
$0.25 per share for an aggregate of $62,500 and charged to operations as a cost
of acquiring the mineral property.
13
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
The shareholders' of Minas Novas have an option until September 30, 1998,
to require the Company to repurchase the 35,714 shares 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. In the event of default by the Company to
repurchase these shares, then the present contract looses all legal validity and
all outstanding shares of Minas Novas must be returned to the seller without
onus to the seller. Effective September 2, 1998, if the principals of Minas
Novas wish to sell on the open market any part of the shares of restricted
stock, these shares can only be sold in blocks with a combined maximum value of
$100,000 in any given month.
The Company also agreed to begin to advance certain monies.
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 reflected a total Contract Payable of
$103,000 consisting of monies due towards the 4 monthly payments of $5,000 due
for 1997, $80,000 and the $20,000 less $17,000 paid as of December 31, 1997.
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
cost to purchase the Minas Novas project of $380,000 to 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. As of December 31, 1999,
upon expiration of the option to purchase Minas Novas the Company has
reclassified Common Stock issued for the option to Stock Holder Equity. The
Company has also recognized a balance of the contract payable aggregating
$103,000. Pursuant to the terms and conditions of the agreement, the Company may
also be liable for liquidated damages of up to $210,000 if litigation should
occur.
As of September 30, 2000, no lawsuit has not been entered into by either
party and in the opinion of management a lawsuit by Minas Novas is not expected
considering that they have regained all rights to the property and their shares
of stock and the benefits of the Company's investment in property improvements
and equipment purchased.
14
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
c. Arizona Property
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 285,714 shares of common stock to various parties in consideration for the
purchase of 18 un-patented mining claims situated in Pima County, Arizona,
valued at $100,000.
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.
d. 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%.
15
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Note 4 - Related Party transactions
-----------------------------------
a. Issuance of Common Stock
On March 31, 1992 the Company issued 8,333 common shares to Mr. Roger
Fidler in consideration for $1,500 in cash and the contribution of $500 in
organization costs.
On December 16, 1997, the Company issued ,pursuant to regulation D, 4,280
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 September 1, 1996, the Company issued an aggregate of 1,550 shares of
common stock to Wolfdietrich Bruehl, former Chairman of the Board, in
consideration for services valued at $22,450 or $14.48 per share.
On May 5, 1997, the Company issued 28,571 shares of common stock to Charles
Stetler, former President, in consideration for services valued at $28,571.
On May 5, 1997, the Company issued an aggregate of 14,285 shares of common
stock to Melanie Ellerton, former President of the Company for an aggregate
consideration for services valued at $5,000 or $.35.
On May 5, 1997, the Company issued an aggregate of 14,857 shares of common
stock to George Nadas in consideration for services valued at $5,000 or $.34 per
share.
On July 10, 1998, the Company sold an aggregate of 1,070,068 shares of
common stock to John Demoleas, President, in consideration for $40,000 or $0.04
per share.
On September 9, 1998 the Company sold an aggregate of 726,666 shares of
common stock to John Demoleas for $14,533 or $0.02 per share.
As of December 31, 1998, the Company issued an aggregate of 7,143 shares of
common stock to John Demoleas, President of the Company for an aggregate
consideration of $5,000 or $.70 per share.
As of September 30, 1999, the Company sold an aggregate of 7,300,000 shares
of common stock for an aggregate of $104,000 or an average value of $0.02 per
share to Mr. John Demoleas, President.
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 September 30, 2000, the Company has not paid any salary
to any of the officers.
16
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
c. Officer Loan
In April 1999 John Demoleas, President of the Company advanced the Company
an aggregate of $50,000 payable on demand without interest.
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
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.
17
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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 September 30, 2000, the number of shares of preferred stock outstanding
was -0-.
Note 6 - Furniture and Fixtures
-------------------------------
Furniture and fixtures consisted of the following at:
December 31, 1999
-----------------
Office equipment $7,191
Accumulated depreciation 4,533
------
Balance $2,658
Note 7 - 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, 2000, 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 carry forward and was fully offset by a
valuation allowance.
At September 30, 2000, the Company has net operating loss carry forwards
for income tax purposes of $2,248,119. This carry forward is available to offset
future taxable income, if any, and expires in the year 2010. The Company's
utilization of this carry forward 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, 2000 are
as follows:
18
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Deferred tax asset:
Net operating loss carry forward $ 760,756
Valuation allowance (760,756)
---------
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 September 30, 2000.
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 8 - Cash Flow Information
------------------------------
The following is supplemental cash flow information for the period from
inception, March 23, 1992, to December 31, 1997
Issuance of 34,202 common shares for
acquisition of mineral properties
on March 13, 1995 $(293,197)
Issuance of 10,057 common shares for
forgiveness of debt (147,376)
Issuance of 2,971 common shares as part
consideration of Minas Novas (43,056)
Issuance of 285,714 common shares as
consideration for acquisition of Arizona
properties (100,000)
Issuance of 187,143 common shares in
consideration for consulting fees (65,500)
Issuance of 35,714 common shares as part
consideration for the Minas Novas acquisition (62,500)
Issuance of 4,286 common shares to 6 advisory
board members in exchange for services (1,500)
Capital Stock 713,129
---------
Total $ 0
=========
19
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
The following is supplemental cash flow information for the year ended
December 31, 1998:
Issuance of 40,000 common shares in consideration
of consulting fees $ (28,500)
Issuance of 599,950 common shares in consideration
of the conversion of debt (101,000)
Capital Stock 129,500
---------
Total $ 0
=========
The following is supplemental cash flow information for the year ended
December 31, 1999:
Issuance of 799,683 shares of common stock
in consideration for the conversion of debt $(24,000)
Issuance of 600,000 shares of common stock
in consideration of consulting fees $(30,000)
Capital Stock $ 54,000
--------
Total $ 0
========
Note 9 - 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, 1998 and September
30, 1999, no options have been granted pursuant to this plan.
20
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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 Petrrolia Road, Unit 7,
Toronto, Canada M3J 3K4. The Company pay 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 Tequcigalps
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.
2. Agreement 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 general
administrative duties for public-held companies and development stage investment
ventures. The term is for 1 year and is renewable.
Payment for these services is 600,000 shares of common stock. As of
September 30, 1999, the Company has delivered 600,000 shares of common stock
valued at $0.05 per share for an aggregate consideration of $30,000.
f. Litigation
There is no litigation pending or anticipated to become pending against the
Company as of the present date.
21
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Note 10 - Convertible Promissory Note
-------------------------------------
The Company borrowed an aggregate of $125,000 as evidenced by a Convertible
Promissory Note, (the "Note") dated March 26, 1998 and due September 22, 1998.
The Company received net proceeds of $109.635 after paying interest in advance
of $15,635. 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. 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 for working capital
and not to pay any indebtedness of the Company.
As of December 31, 1998, the Company had converted $101,000 in debt into an
aggregate of 1,018,584 shares of common stock for an average conversion price of
$.10 per share.
As of December 31, 1999, the Company converted the balance of $24,000 into
799,683 shares of common stock in consideration for the conversion of $24,000 in
debt $.03 per share.
On the dates of conversion of the promissory notes, the conversion prices
were less than the fair values of the common stock, hence a beneficial
conversion feature is attached to these convertible notes. For the year ended
December 31, 1998 and 1999, the amount of this beneficial conversion feature is
$41,248 and $7,994 respectively and has been recorded as interest expense and
additional paid-in-capital for the years ended December 31, 1998 and 1999.
22
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDING MARCH 31, 2000 AND THE PERIOD FROM INCEPTION
(March 23, 1992) T0 SEPTEMBER 30, 2000.
Exploration Stage Activities:
The Company has been an exploration stage enterprise from its inception
March 23, 1992, to September 30, 2000. The Company is an exploration stage
company involved in the exploration of a gold mining concession in Honduras,
which began in October, 1997.
The Company was formed on March 23, 1992 and remained inactive until 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 34,202 of the Company's common shares. 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 accumulated mineral costs of $446,957 to
operations for the year ending December 31, 1996.
On June 27, 1996, the Company, under the same management, 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, which included various mineral properties in Brazil. As of December
31, 1998, the Company, under the direction of a new President, John Demoleas,
concluded that the Minas Novas Project was not able to yield production
sufficient to offset the required investment in exploration and commercial
production costs and has charged the accumulated mineral costs of $225,191 to
operations as of December 31, 1998.
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 285,714 shares of common stock to various parties in consideration for the
purchase of 18 un-patented mining claims situated in Pima County, Arizona,
valued at $100,000. 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 to operations for the
year ending December 31, 1998.
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 mineral rights from Desarrollo De Recursos
Naturales, S. de R.L. de C.V., ("Derena") consisting of mineral concessions
aggregating 18,000 hectares. As of December 31, 1999, the property in Honduras
is the only active mining project that the Company feels will be capable of
yielding production level quantities of gold. As of June 30, 2000, the Company
has charged an aggregate of $705,869 to exploration costs. The Company is in the
process of pursuing and finding a management team to complete the feasibility
studies and conducting geologic exploration and analyze test borings of the
Honduras project.
To finance these activities, the Company sold through the period from 1995
through December 31, 1999 an aggregate of 4,057,894 shares of common stock with
an aggregate consideration of $902,144. The Company has sold an aggregate of
7,600,000 shares of common stock for an aggregate consideration of $114,000.
Also during this period the Company has been financed through loans that were
subsequently converted to 1,828,324 shares of common stock aggregating $272,376.
23
<PAGE>
There can be no assurance that production will develop. Further investments
into exploration activities 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.
Results of Operations for the period ended September 30, 2000 as compared
to the period ended September 30, 1999. For the year period ended September 30,
2000, the Company has not generated any revenue from the production and sale of
minerals. In January 2000 Highland Resources Honduras S. A. hired Pecas
Consultores to handle all administrative and personnel functions in Honduras
including moving its offices to a new location in order to reduce expenses and
oversee the exploration work on the Zapote I property.
The Company's general and administrative costs aggregated approximately
$35,488 for the period ended September 30, 2000 as compared to $20,870 for the
period ended September 30, 1999 representing an increase of $14,618. The focus
by the Company on utilizing available cash in developing the property in
Honduras and the cessation of expenses related to the Brazil properties showed a
decrease in the Exploration costs from $97,648 as of September 30, 1999 to
$59,506 as of September 30, 2000 a decrease of $38,142.
Liquidity and Capital Resources.
The accompanying financial statements have been prepared on a going concern
basis which assumes that the Company will continue in operation for at least one
year and will be able to realize its assets and discharge its liabilities in the
normal course of business. The Company incurred net losses from inception to
September 30, 2000 of $2,248,119. The Company has not generated positive cash
flow from operations in 2000. These factors indicate that the Company's
continuation as a going concern is dependent upon, among other things, its
ability to obtain adequate financing.
The Company's cash balance at September 30, 2000 was $2,341. For the
quarter ended September 30, 2000, the Company continued to be funded in part
from the sale during earlier years of 7,600,000 shares of common stock
aggregating $114,000 and from the proceeds from the sale of a convertible bonds
and the subsequent conversion into an aggregate of 799,999 shares of common
stock for an aggregate of $49,032 and officer loans of $127,712.
For the quarter ended September 30, 2000 the Company expended cash as
follows: General and Administrative $14,199 and Exploration $11,000. During the
third quarter of 2000, the Company restricted its expenses for exploration
expenses to the Honduras project.
In a special meeting of the Board of Directors on April 3, 2000, Charles
Stetler was dismissed as a member of the Board due to his non-involvement since
January 2000. Because of his departure from Honduras without explanation at that
time and his lack of communication with the company and board since January
despite repeated efforts of the Company to contact him his whereabouts remain
unknown it was deemed in the Company's best interest that a replacement be
sought.
24
<PAGE>
Also, Highland Resources Honduras, has hired Geoconsult, Inc. an Honduran
mining consultant company as of May 2000 to oversee the exploration program on
the Zapote 1 Property, previously supervised by Charles Stetler.
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
cost to purchase the Minas Novas project of $380,000 to 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 35,714
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. As of December 31, 1999
upon the expiration of the option to purchase Minas Novas, the Company has
reclassified the common stock issued for the option to stock holder equity. The
Company has also recognized a balance of the contract payable aggregating
$103,000. 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
In the opinion of management, there is in fact very little likelihood that
the liquidated damages will ever be paid. The people at Minas Novas have taken
back their shares of stock, kept any equipment and improvements that were made a
part of the property, kept any additional cash that was paid to them and in
addition have kept all of the shares of common stock issued to them except for
the stop transfer on the 35,714 shares. This enrichment amounts to far in excess
of any loss they have suffered. However, the costs of bringing the lawsuit in a
foreign country would only bring the Company additional expenses beyond what the
potential near term value of the resources to be recovered. Whatever resources
the Company has at its disposal may well be better spent on the Honduras
property which is in fact showing promise. Further the laws of Brazil legislated
in the last few years only serve to make mining operations in Brazil more
expensive than the value of the minerals to be obtained.
The Company experienced an apparent volatility in the average price per
share of common stock issued and valued for accounting purposes. The price per
share was derived by dividing the number of shares of common stock originally
issued and later adjusted for reverse splits in the number of shares outstanding
in a 17,500 forward split on January 24, 1995; a 30 to 1 reverse split on April
4, 1997 and a 7 to 1 reverse split on July 1, 1998 and such the per share
amounts have been adjusted to reflect the adjusted number of shares. In
addition, management believes that the slow progress of the exploration work,
the inability of the company to find a major joint-venture partner or equity
partners, the overall decline in gold prices worldwide and the general downturn
of ht e mining industry were all factors contributing to the volatility of the
share price.
Management believes that it will be required raise funds in addition to
funds provided by personal resources. Management believes that approximately
$300,000 will be needed from either personal resources or needed to be raised
through private placements or a public offering in order to complete preliminary
exploration, purchase equipment and begin production. The proceeds from these
fund raisings from one or more of these sources should be sufficient to satisfy
Management's objectives of purchasing equipment for office, production and
exploration of $100,000, conduct ore testing amounting to $30,000; pay
25
<PAGE>
consultants $80,000; salaries of $30,000; office expenses of $30,000; telephone
of $10,000; and pay travel expenses of $20,000. The ability of the Company to
remain as a going concern over the next 12 months to further explore the
Honduran property and cover its administrative obligations is dependent on its
ability to raise capital, which has come from management since September 1999.
There remains substantial doubt about the company's ability to raise capital in
the markets and how long management can continue to fund operations.
Income tax: As of September 31, 1999 the Company had a tax loss
carry-forward of $2,139,618. As of September 30, 2000 the Company has a retained
earnings loss of $2,248,119. 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 expects its capital requirements to increase over the next
several years as it continues to develop its business, increases sales and
administration infrastructure and embarks on developing in-house business
capabilities and facilities. The Company's future liquidity and capital funding
requirements will depend on numerous factors, including the extent to which the
Company's present management can fund or raise funds to continued capital
requirements, the costs and timing of expansion of exploration, property
development, facilities expansion needs, and competition in the business entered
into.
The Company believes that its available cash and cash from management
contributions is not sufficient to satisfy its funding needs to complete the
Company's exploration needs and bring the company to an exploration stage. The
Company will continue to seek working capital from private placements and will
seek to conduct a public offering for its securities once the Company has been
approved to become a reporting Company. There can be no assurance that such
financing, if required, will be available on satisfactory terms, if at all. If
the Company is unsuccessful in raising capital in a timely manner to continue
the Company's exploration process, this will significantly delay the Company
from achieving profitable operations.
If management is unable to provide funds from private sources or raise
funds through private or public offers, this could materially jeopardize the
Company's ability to continue as a going concern and may even cause the Company
the continued ownership of the present mineral holdings.
To date, the Company is an exploration Stage Company involved in the
application and development of a gold mining concession in Honduras which it
began in October 1997. The Independent Auditor's Report and the Financial
Statements for the year ending December 31, 1999 are included in addition to the
Financial Statements for the quarter ending September 30, 2000.
SIGNATURES:
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HIGHLAND HOLDING INTERNATIONAL, INC.
(Registrant)
/s/ JOHN DEMOLEAS
-------------------------------------
John Demoleas: President
Date: November 13, 2000
26
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
PERIOD TYPE 3-MOS
FISCAL YEAR END DEC 31,2000
PER END SEPTEMBER 30, 2000
CASH $ 2,341
SECURITIES $ 1,497
RECEIVABLES $ 0
PREPAID EXPENSES $ 1,104
CURRENT ASSETS $ 4,942
FIXED ASSETS $ 2,658
TOTAL ASSETS $ 7,600
CURRENT LIABILITIES $ 19,986
LONG TERM LIABILITIES $ 230,712
CAPITAL STOCK $ 14,685
PAID IN CAPITAL $ 1,984,354
RETAINED EARNINGS $(2,248,119)
SALES $ 0
EXPENSES $ 94,994
NET INCOME (LOSS) $ (108,501)
STOCKHOLDERS EQUITY $ (243,098)
