SECURITIES AND EXCHANGE COMMISSION
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Washington, D. C. 20549
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FORM 10-SB AMENDMENT #4
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.
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(Name of Small Business Issuer in its charter)
DELAWARE 98-0179679
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(State or other jurisdiction IRS Employer Identification No.)
of incorporation or organization)
6227 Highway 393
Crestview, Florida 32539
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(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 TO 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)
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HIGHLAND HOLDINGS INTERNATIONAL. INC.
TABLE OF CONTENTS
Part Item Description of Item Page
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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
Liquidity and Capital Resources 6
Reports to Security Holders 15
Impact of the Year 2000 on Information Systems 15
Item 3 Description of Property 16
Item 4 Security Ownership of Certain Beneficial Owners
and Management 16
Item 5 Directors, Executive Officers, Promoters and
Control Persons 16
Directors and Executive Officers 17
Business Experience 17
Item 6 Executive Compensation 17
Item 7 Certain Relationships and Related Transactions 17
Item 8 Description of Securities 18
Common Stock
Preferred Stock
Part II Item 1 Market Price of and Dividends on Registrant's
Common Equity and Related Shareholder matters 19
Market Information
Holders
Dividends
Item 2 Legal Proceedings 20
Item 3 Changes in and Disagreements with Accountants 20
Item 4 Recent Sales of Unregistered Securities 20
Item 5 Indemnification of Directors and Officers 22
Part F/S Item 1 Financial Statements
Financial Data Schedule 24
Audited Statement December 31, 1999 F-1
Part III Item 1 Index to Exhibits 25
* Articles and Amendments
* Bylaws
* Specimen Certificate
Signature Page 25
* Filed with SB-10
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HIGHLAND HOLDINGS INTERNATIONAL, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Highland Holdings International, Inc. is presently in the exploration stage and
there is no assurance that any of its prospects or properties contain a
commercially viable mineral deposit (a reserve) until further exploration work
is done and a final evaluation of such work concludes legal and economic
feasibility. The company has not earned any revenues to date and has an
accumulated deficit of $176,201.
The Company was initially incorporated under the laws of the State of Delaware
on March 23rd 1992 under the name Northern Medical, Inc. with the aim of
developing and manufacturing chemical products in the plastic and coating
business. 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
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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. All three mineral properties were originally staked by
Derena-Desarrollo de Recursos Naturales S. de R.L. - a Honduran mining company
founded by Mr. Lennart Mattsson and John Svanholm in 1982. Both Mr. Mattsson and
Mr. Svanhom were long-term United Nations employees in Honduras. Upon retirement
they founded the Derena company.
Derena spent 15 years staking and exploring the areas of interest by Mr.
Svanholm, who died while working on the company's prospects. Mr. Mattsson has
continued his role as Derena's administrator and primary financier.
In July 1997, Highland Holdings exercised an option to acquire the mineral
properties. On October 7, 1997, Highland assumed them. At this time, five vein
structures have been found within the four Zapote mining concessions;
preliminary sampling at the Derena exploration claim showed some gold
mineralization at outcrops and old workings; surface showings of copper, silver,
zinc, and mercury had been found along a seven-kilometer fault-controlled trend
at Jimingula.
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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. Existing adits have been
extended and treachings has been carried out to explore surface exposure of vein
outcrops. 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.
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.
Engineering
The 400 hectare Zapote mining concession block is centered on the Rey del Oro
mine which operated by a German group until 1943 when Honduras declared war on
Germany and the owners were forced to leave the country. The property was
acquired by Derena in 1982 which located two high-grade (plus 30g/t) ore shoots
in the old workings that the Germans apparently overlooked. Samplings by Derena
and independently by the Honduras Ministry of Natural Resources and Environment,
both of which have been confirmed by Highland check sampling, shows medium to
high-grade gold mineralization on surface and underground vein structures. A
preliminary assessment of the Rey del Oro mine and surrounding acreage by
Highlands; mining consultants, Loeb Aron & Company, indicates at least four
multiple vein structures and other areas on the concession block may also
contain similar deposits as suggested by surface indications not yet sampled at
depth.
The 3,600 hectare Derena exploration claim with limited prospecting has found
gold mineralization on surface outcrops and from underground workings. The
property was reportedly worked in the 1930's using "arractre" a simple grinding
device powered by mules for gold recovery. An extensive program of exploration
is needed to evaluate the potential of the property.
Brazil
The 934 hectare Gandarela Gold project comprised from three exploration permits
had 8,365 meters of surface and underground diamond-core drilling yielding 3,202
samples.
Arizona
Consisted of 18 unpatented mining claims situated in Pima County, Arizona
purchased from Livingstone Exploration Corp., a State of Arizona corporation in
1998.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDING DECEMBER 31, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 AND THE PERIOD FROM INCEPTION (March 23, 1992) T0
DECEMBER 31, 1999.
Exploration Stage Activities:
The Company has been a exploration stage enterprise from its inception
March 23, 1992, to December 31, 1999. The Company is an exploration stage
company involved in the exploration of a gold mining concession in Honduras
which began in October, 1997.
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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 Lagoa 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.
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,
had 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 1 unpatented 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 December 31, 1999, 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 to related parties 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.
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.
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Results of Operations for the year ended December 31, 1999 as compared to
the year ended December 31, 1998.
For the year ended December 31, 1998 and 1999, the Company has not
generated any revenue from the production and sale of minerals.
The following table sets forth a schedule of expenses for the year ended
December 31, 1998 and 1999:
December 31, December 31,
1998 1999
Travel $ 49,225 $
Consulting 66,000
Professional fees 44,506 6,696
Office Expenses 38,039 2,226
Salaries 99,155 18,905
Rent 9,200
Gain on foreign exchange 27,841
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$333,966 $ 27,827
The Company chose to consult with a public relations expert to generate and
maintain awareness of the Company and its operations with the investing public.
At the time, the Company had 400 shareholders across North America. Services
offered by the public-relations experts included preparation and dissemination
of press releases, news announcements and quarterly shareholder letters. They
also designed and developed the Company brochures and created a Company website.
Management's decision to reduce administrative expenses by way of eliminating
the corporate office in Toronto, Canada and cut back administrative salaries for
clerical and secretary help and reduce the moneys expensed on travel back and
forth to Honduras was instrumental in preserving cash and decreasing the
company's expenditures from $333,966 in 1998 to $27,827 a decrease of $306,139.
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
December 31, 1999 of $2,139,618. Although expenses in 1999 include non-cash
charges aggregating $1,017,253 (amortization and depreciation charges of $4,533
and interest expenses of $64,877, the Company has not generated positive cash
flow from operations in 1999. These factors indicate that the Company's
continuation as a going concern is dependent upon, among other things, its
ability to obtain adequate financing.
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The Company's cash balance at December 31, 1999 was $5,678. Working capital
at December 31, 1999 was negative by $137,255. For the year ended December 31,
1999, the Company continued to be funded in part by the sale 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 $24,000 and an officer loan of
$50,000. For the years ending December 31, 1998 and 1999, the Company
experienced losses on foreign exchange of $940 and $1,699 through the conversion
of Canadian dollars into U.S. currency. The payment of administrative expenses
and purchase of assets in Canada are paid in Canadian currency. The reporting
currency for the Company is in U. S. Dollars. However the Company does transfer
US Dollars into the accounts of its subsidiaries in Canada and Honduras and in
the past Brazil. Assets and liabilities were translated using the exchange rate
at the balance sheet date; revenues, expenses, gains and losses were translated
by using the weighted average exchange rate for the period from January 1, 1999
to December 31, 1999.
The Company was funded during 1998 and 1999 through the sale of convertible
notes and the subsequent conversion of these notes into shares of common stock.
The Company borrowed an aggregate of $125,000 as evidenced by a Convertible
Promissory Note with Cadence Capital Corp., (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 was payable pursuant to the
following terms and conditions: interest was payable at the rate of 12% in
advance upont he closing of the issuance of this Note. The holder of this Note
had 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 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 affiliate 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 were 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 corporation. 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 market 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 expenses and additional
paid-in-capital for the years ended December 31, 1998 and 1999.
The Company was also funded during 1998 through the sale of an aggregate of
4,101,528 shares of common stock for an aggregate consideration of $280,000.
For the year ended December 31, 1998, the Company expended cash as follows:
the purchase of office equipment aggregating $6,584 the payment of a security
deposit of $2,853. For the year ended December 31, 1999, the Company expended
cash for operations aggregating $134,845 essentially for further exploration of
the Company's mineral properties. During the latter part of 1998 and throughout
1999, the Company drastically reduced expenses focusing all its available cash
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on the exploration of the Honduras property. The Company reduced its expenses
for the maintenance of an office in Toronto and sharing office space with George
Nadas. The Company further eliminated the need for 2 employees and has not paid
any cash compensation for the President and Comptroller. Travel expenses for
administrative staff were further reduced during 1999 with the shift in
requiring the present staff in Honduras to increase their work load and handle
those administrative functions previously accomplished in Toronto.
During 1999, the Company further restricted its expenses for exploration
expenses to the Honduras project eliminating all expenses for Brazilian
projects. 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 latter 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 reflected 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 the mining industry were all factors contributing to the volatility of the
share price.
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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
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 market s and how long management can continue to fund operations.
Income tax: As of December 31, 1998 and September 31, 1999, the Company had
a tax loss carry-forward of $1,920,603 and $2,139,618 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 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.
The Company has been a exploration stage enterprise from its inception
March 23, 1992 to present. The Company was initially formed to explore the
development and manufacturing of specialty chemical products and applications in
the plastics and coasting industries though no business activity was executed in
this regard. The Company was dormant from March 23, 1992 to March 13, 1995 when
it entered into an agreement to acquire the alluvial gold and diamond mineral
rights of the Lagoa da Pedra project in Brazil. The Lagoa da Pedra partnership
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called for 7,182,315 shares of the company's common stock. This partnership
formed under the laws of Brazil on December 31, 1992 consisted of three
partners, Jose Lourenco Viana the Company's secretary and treasurer from 1992
until March 1997, when he was replaced by George Nadas but remained a member of
the board; Mr. Stetler acted as the Company's president from 1992 until March
1997; Mr. Bruehl acted as the Company's chairman from 1992 until July 1998. Note
that in March 1997 Mr. Stetler stepped down as the Company's president to act as
the Company's Chief Geologist. He was replaced by Melanie Ellerton until April
30, 1998 when she was replaced by John Demoleas.
After two years of exploration work, including 2,400 meters of underground
development with 3,202 gold samples taken along the reef drives and in drill
holes the Lagoa da Pedra project was deemed unfeasible and the company did not
continue any exploration activities again until March 1997 when it received
several small private placements. This funding eventually enabled the Company to
purchase the mineral rights of Derena-Desarrollo de Recursos Naturales S. de
R.L. in October 1997 in Honduras.
To date, the Company is an exploration Stage Company involved in the
application and exploration of a gold mining concession in Honduras which it
began in October 1997.
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 (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 25% of the
Partnership). Charles Stetler and Jose Lourenco Viana Neto are experienced in
the mining industry in Brazil and will manage the operations in Brazil and
Enterprise Gold Limited 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 acquisition and using the
purchase method of accounting with historic costs being the basis for
valutation. 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 Lagoa 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.
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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, 1996, 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. 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 $62,500 and charged to
operations as a cost of acquiring the mineral property.
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 35,714 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 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 the balance for monies due towards 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 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 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.
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As of December 31, 1999, a 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.
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 1 unpatented 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%.
During this period management devoted the majority of its efforts to
obtaining, locating and 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 conducting geologic exploration and analysis of test borings,
completing the documentation for and selling initial shares through the
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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. From
October 1997 to September 1999 the Company completed its evaluation of its three
Honduran mining concessions and decided that its best prospects lie with
focusing its resources there. There can be no assurance that production will
develop. Further investments into exploration 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.
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 can 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.
1. 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.
2. 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.
3. 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.
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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. The Company is current in all required Honduran filings.
The risks of conducting business in Honduras include currency fluctuations and
uncertain political and social risks. 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.
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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.
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.
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. The Company has not
experienced any Year 2000 problems through September 25, 2000 and does not
expect this to be an issue. The Company does not know the status of Honduras as
a country and the effect of Y2K on the Country but expects it will be minor if
there is any effect at all.
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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 workings. The Company has
met all contractual obligations with no further exploration or funding costs
required. Other areas on the concession block may also contain deposits but as
yet are not sampled at depth.
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%
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.
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Mr. John P. Demoleas. Chairman, President and CEO.
May 1998 to Present 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 March 1997 to Present
Since 1989, Mr. Nadas has been a founder and 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.
Mr.Charles Frederick Stetler, Director March 1995 to Present
Mr. Stetler served as President and CEO from March 1995 to March 1997 and from
that date until the present he has served as the chief Geologist and 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 March 1997 to Present
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. She has also been an owner of the Sundance
Equestrian Riding Centre.
ITEM 6. EXECUTIVE COMPENSATION
In 1996 the Company issued 1,550 shares of common stock to Worlf Dietrich Bruel,
Chairman valued at $22,450 and 1,185 shares of common stock to Charles Stettler,
president valued at $17,183 in consideration of services.
In 1997 the Company issued 28,571 shares of common stock to Charles Stettler,
President valued at $25,571, 14,285 shares of common stock to Melanie Ellerton,
former President valued at $5,000 and 14,857 shares to George Nadas, Treasurer
valued at $5,223 in consideration of services.
In 1998 the Company issued 7,143 shares of common stock to John Demoleas,
President for services valued at $5,000.
For the year ended December 31, 1999 the Company has not paid any cash salary to
any of the officers.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Director, Officer, Promoter or Control Person is, or has been in debt to the
Company.
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<PAGE>
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, 4,286
shares of common stock to 6 advisory board members in exchange for services over
a period of 1 year valued at $1,500 or $.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 an aggregate of 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, pursuant to Rule 504, 726,666 shares of
common stock to John Demoleas for an aggregate consideration of $14,533 or $0.02
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 December 31, 1998, the Company issued an aggregate of 7,143 shares of
common stock to John Demoleas, President of the Company in consideration of
services valued at $5,000 or $.70 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, 1999, the Company has not paid any salary to any
of the officers.
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.
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.
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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
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 HHII.
There are 4,044,279 shares of free trading shares of the Company's Common Stock.
As of December 31, 1999, the High and Low Bids for the securities during the
previous two years by quarter were:
1998 1999
---- ----
1st Quarter 3.843 - .406 .15 - .01
2nd Quarter .70 - .11 .05 - .02
3rd Quarter .20 - .04 .05 - .02
4th Quarter .10 - .01 .21 - .02
These prices reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
Highland's common stock is covered by the Securities and Exchange Commission
rule that imposes additional sales practice requirements on broker-dealers who
sell these securities to persons other than established customers and accredited
investors, generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and transaction prior to the sale. Consequently, the rule may affect
the ability of broker dealers to sell our securities and also may affect the
ability of purchasers of our stock to sell their shares in the secondary market.
It may also cause less broker-dealers to make a market and it may affect the
level of news coverage we receive.
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.
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ITEM 2. LEGAL PROCEEDINGS.
The Company is presently not a plaintiff nor a defendant in any action nor is
aware of any circumstance which would cause litigation to be commenced.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
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.
On March 31, 1992, the Company issued, pursuant to regulation D, 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, pursuant to regulation D,
Rule 504 with an aggregate consideration of $293,197 or $8.57 per share.
On September 11, 1996, the Company issued, pursuant to regulation D, Rule 504,
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, pursuant to regulation D, 2,971
shares of common stock as part consideration in the acquisition of Minas Novas
valued at an aggregate consideration of $43,056.
On May 5, 1997, the Company issued, pursuant to regulation D, Rule 504 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.
On May 5, 1997, the Company issued, pursuant to Regulation 701, an 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. Charles
Stetler 28,571; Hardport Investments 28,751; Perth Ltd. 42,857; Crocker Capital
Ltd. 14,286; George Nadas 14,286; Annette Reichman 1429; Melanie Ellerton
14,286.
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On May 30, 1997, the Company sold 42,857 shares of common stock, pursuant to
Regulation D, 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 at $.05 per
share, pursuant to a private placement under Regulation D "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, pursuant to regulation D, 35,714
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: 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.
On December 16, 1997, the Company issued, pursuant to regulation 701, 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, pursuant to regulation D, Rule 504,
75,000 shares pursuant to Regulation D for an aggregate consideration of
$525,000 or $7.00 per share.
During 1998, the Company issued 40,000 shares of common stock in consideration
of consulting fees valued at $28,500.
During 1998, the Company sold, pursuant to Regulation D Rule 504, 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 $.16 per share.
The Company sold, pursuant to Regulation D Rule 504, 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.
During the year 1998, the Company issued, pursuant to regulation D, Rule 504 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
The Company sold, pursuant to Regulation D Rule 504, 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.
As of December 1999 the Company sold pursuant to Regulation D Rule 504, 799,683
shares of common stock for $24,000.
Related Party transactions
--------------------------
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.
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On December 16, 1997, the Company issued, pursuant to regulation D, 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 $.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 an aggregate of 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 December 31, 1998 and for the nine months ended September 30,
1999, the Company has not paid any salary to any of the officers.
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 reference in the
by-laws refers to the indemnification provided under Section 145 of the Delaware
Code as amended which provides for the indemnification of officers, directors,
employees and agents who a made a party to or threatened pending or completed
suit or proceeding, whether civil, criminal administrative or investigative for
actions taken by them as a corporate officer, director, employee or agent in a
manner which "if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful."
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The Company has the authority under Delaware Code, Section 145 to purchase
insurance but as of this date has not purchased insurance to cover any
indemnification.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Amended and Restated by-laws contain provisions eliminating the personal
liability of a director to the Company and its stockholders for certain breaches
of his or her fiduciary duty of care as a director. This provision does not,
however, eliminate or limit the personal liability of a director (i) for any
breach of such director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) under Nevada statutes making
directors personally liable, under a negligence standard, for unlawful dividends
or unlawful stock repurchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. This provision offers
persons who serve on the Board of Directors of the company protection against
awards of monetary damages resulting from breaches of their duty of case (except
as indicated above), including grossly negligent business decisions made in
connection with takeover proposals for the Company. As a result of this
provision, the ability of the Company or a stockholder thereof to successfully
prosecute an action against a director for a breach of his duty of care has been
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his duty of care. The SEC has taken the position that the provision will have no
effect on claims arising under the federal securities laws.
23
<PAGE>
FINANCIAL DATA SCHEDULE
As of December 31, 1999
This schedule contains summary financial information extracted from financial
statements for the twelve month period ended December 31, 1999 and is qualified
in its entirety by reference to such financial statements.
MULTIPLIER 1
TABLE
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END DEC-31-1999
PERIOD-START JAN-1-1999
CASH 5,678
SECURITIES 0
RECEIVABLES 0
ALLOWANCES 0
INVENTORY 0
CURRENT-ASSETS 38,157
PP&E 7,191
DEPRECIATION 4,533
TOTAL-ASSETS 40,815
CURRENT-LIABILITIES 175,412
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 14,685
OTHER -SE (149,282)
TOTAL-LIABILITY-AND-EQUITY 40,815
SALES 0
TOTAL-REVENUES 0
CGS 0
TOTAL-COSTS (173,370)
OTHER-EXPENSES 0
LOSS-PROVISION (173,370)
INTEREST-EXPENSE 0
INCOME-PRETAX (173,370)
INCOME-TAX 11,903
INCOME-CONTINUING (173,370)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME (219,015)
EPS-PRIMARY (.02)
EPS-DILUTED (.02)
PART F/S
The Independent Auditor's Report and the Financial Statements for the year
ending December 31, 1999 are included in addition to the Independent Auditor's
Report and Financial Statements for the year ending December 31, 1998.
24
<PAGE>
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. (an exploration stage company)
I have audited the accompanying consolidated balance sheet of Highland
Holdings International, Inc. (an exploration stage company) as of December 31,
1999 and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1998 and 1999 and for the
period from inception, March 23, 1992, to December 31, 1999. 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. (an exploration stage company) as of December 31,
1999 and the related consolidated statements of operations, cash flows and
shareholders' equity for the years ending December 31, 1998 and 1999 and for the
period from inception, March 23, 1992, to December 31, 1999 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Highland Holdings International, Inc. (an exploration 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. (an exploration stage company) to continue as a going
concern.
/s/ Thomas P. Monahan
---------------------
Thomas P. Monahan, CPA
April 28, 2000
Paterson, New Jersey
F1
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED BALANCE SHEET
December 31,
1999
----
Assets
<S> <C>
Current assets
Cash $ 5,678
Trading securities 31,375
Prepaid expenses 1,104
-----------
Total current assets 38,157
Furniture and fixtures-net 2,658
Total assets $ 40,815
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 22,412
Officer loan payable 50,000
Contract payable 103,000
-----------
Total liabilities 175,412
Stockholders equity
Preferred stock- $.001 par value, authorized 5,000,000 shares.
The number of shares outstanding at December 31, 1999 was -0-.
Capital stock- $.001 par value, authorized 20,000,000 shares.
The number of shares outstanding at December 31, 1999 was 14,684,581 14,685
Additional paid in capital 1,984,354
Accumulated other comprehensive income: Currency translation 5,982
Accumlated deficit during exploration stage (2,139,618)
-----------
Total stockholders equity (134,597)
-----------
Total liabilities and stockholders equity $ 40,815
===========
See accompanying notes to financial statements.
F2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period
from inception,
For the year For the March 23, 1992,
ended year ended to
December 31, December 31, December 31,
1998 1999 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net profit (loss) $ (449,445) $ (219,015) $(2,139,618)
Add items not affecting cash
Depreciation and amortization 1,370 1,956 4,533
Issuance of common stock for consulting fees 28,500 30,000 125,500
Issuance of common stock for the Lagoa da Pedra Project -- -- 293,197
Issuance of common stock for the acquisition of Arizona properties -- -- 100,000
Issuance of common stock for the acquisition of Minas Novas -- -- 105,556
Interest expense 52,974 11,903 64,877
Write off of security deposit 2,853 -- --
Write off of office equipment abandoned with shut down of office 6,044 -- --
Changes in non-cash operating accounts -- -- --
Trading securities -- (31,375) (31,375)
Prepaid expenses (1,347) 6,570 (1,104)
Accounts payable (17,039) 15,116 22,412
----------- ----------- -----------
TOTAL CASH FLOWS FROM OPERATIONS (376,090) (184,845) (1,456,866)
CASH FLOWS FROM FINANCING ACTIVITIES
Officer loan payable -- 50,000 50,000
Contract payable -- -- 103,000
Proceeds from issuance of shares of common stock for debt -- -- 147,376
Proceeds of convertible note 109,365 -- 109,365
Currency translation adjustment (940) (1,699) 5,982
Sale of stock-net of offering costs 272,144 122,024 1,053,168
----------- ----------- -----------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 380,569 170,325 1,468,891
CASH FLOWS FROM INVESTING ACTIVITIES
Office equipment -- -- (7,191)
----------- ----------- -----------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES -- -- (7,191)
NET INCREASE (DECREASE) IN CASH 4,479 (14,520) 5,678
CASH BALANCE BEGINNING OF PERIOD 15,719 20,198 -0-
----------- ----------- -----------
CASH BALANCE END OF PERIOD $ 20,198 $ 5,678 $ 5,678
=========== =========== ===========
See accompanying notes to financial statements.
F3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period
from inception,
For the year For the March 23, 1992
ended year ended to
December 31, December 31, December 31,
1998 1999 1999
---- ---- ---------
<S> <C> <C> <C>
Income $ -0- $ -0- $ -0-
Cost of goods sold -0- -0- -0-
----------- ----------- -----------
Gross profit -0- -0- -0-
Operations:
General and administration 333,966 27,827 829,954
Exploration costs 32,635 130,197 705,869
Non cash compensation-consulting fees 28,500 30,000 125,500
Non cash payment for minining interests -- -- 391,753
Realized and unrealized loss on trading
securities-net -- 17,132 17,132
Depreciation and amortization 1,370 1,956 4,533
----------- ----------- -----------
Total expense 396,471 207,112 2,074,741
Loss from continuing operations (396,471) (207,112) (2,074,741)
Other income and loss
Interest expense (52,974) (11,903) (64,877)
----------- ----------- -----------
Total other income and expenses (52,974) (11,903) (64,877)
Net Profit (Loss) from operations $ (449,445) $ (219,015) $(2,139,618)
=========== =========== ===========
Net loss per share-basic $ (0.01) $ (0.02)
=========== ===========
Weighted average number of shares outstanding 2,134,123 9,962,675
=========== ===========
See accompanying notes to financial statements.
F4
</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 2,971 3 43,053 43,056
acquisition
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 285,714 286 99,714 100,000
acquisition
Issuance of shares for 187,143 187 65,313 65,500
consulting services
Sale of shares 42,857 43 14,957 15,000
Sale of shares 257,143 257 89,743 90,000
Issuance of shares for 35,714 36 62,464 62,500
acquisition
Issuance of shares to Advisory 4,286 4 1,496 1,500
Board
Sale of shares 75,000 75 524,925 525,000
Currency translation adjustment 8,621 8,621
Net loss (593,679) (593,679)
----------- ----------- ----------- ----------- ----------- -----------
12-31-1997 943,420 943 1,371,186 (1,471,158) 8,621 (90,408)
Issuance in consideration for 40,000 40 28,460 28,500
consulting fees
Issuance of shares for 1,018,584 1,019 99,981 101,000
conversion of debt
Sale of shares through private 604,761 605 155,395 156,000
placement
Sale of shares 340,000 340 33,660 34,000
Sale of shares through private 2,738,133 2,738 79,406 82,144
placement
Beneficial conversion feature on 41,248 41,248
loans
Foreign currency translation (940) (940)
Net loss (449,445) (449,445)
----------- ----------- ----------- ----------- ----------- -----------
12-31-1998 5,684,898 $ 5,685 $ 1,809,336 (1,920,603) 7,681 (97,901)
Table continues on following page.
F5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Continued)
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>
Capital contribution 8,024 8,024
Sale of shares through private 7,600,000 7,600 106,400 114,000
placement
Issuance of shares for 799,683 800 23,200 24,000
conversion of debt
Issuance of shares for 600,000 600 29,400 30,000
consulting fees
Beneficial conversion feature on 7,994 7,994
loans
Currency translation adjustment (1,699) (1,699)
Net loss (219,015) (219,015)
---------- ----------- ----------- ----------- ----------- -----------
12-31-1999 14,684,581 $ 14,685 $ 1,984,354 $(2,139,618) $ 5,982 (134,597)
========== =========== =========== =========== =========== ===========
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.
F6
</TABLE>
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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
exploration 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.
F7
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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.
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 of $28,500 or for an average price of $0.71 per share.
During the year 1998, the Company sold 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.
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.
F8
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 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
$2,139,618 for the period from inception, March 23, 1992, to December 31, 1999.
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, 1999 and the balance sheet as at December 31,
1999 and the related consolidated statements of operations, stockholders equity
and cash flows for the years ending December 31, 1998 and 1999. and the related
consolidated statements of operations, stockholders equity and cash flows for
the period from inception, March 23, 1992, to December 31, 1999.
F9
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 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;
F10
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Revenues, expenses, gains, losses were translated by using the weighted
average exchange rate for the period from January 1, to December 31, 1999.
The translation loss for the period from January 1, to December 31, 1999 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
F11
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
partnership consisted of Charles Stetler, a geologist (owning 12.5% of the
Partnership), Jose Lourenco Viana Neto (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 25% of the
Partnership). Charles Stetler and Jose Lourenco Viana Neto are experienced in
the mining industry in Brazil and will manage the operations in Brazil and
Enterprise Gold Limited 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 acquisition and using the
purchase method of accounting with historic costs being the basis of valuation.
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 Lagoa 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
F12
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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.
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 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 the monies due towards 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 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 HolderEquity. 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 December 31, 1999, a 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.
F13
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 unpatented 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.
F14
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 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, 4,286
shares of common stock to 6 advisory board members in exchange for services over
a period of 1 year valued at $1,500 or $.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 an aggregate of 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 December 31, 1999, the Company has not paid any salary to
any of the officers.
F15
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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
F16
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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, 1999, 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 December 31, 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 carry forward and was fully offset by a
valuation allowance.
At December 31, 1999, the Company has net operating loss carry forwards for
income tax purposes of $2,139,618. 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.
F17
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
The components of the net deferred tax asset as of December 31, 1999 are as
follows:
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 December 31, 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 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-
F18
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 nine months
ended December 31, 1999:
Issuance of 799,683 common shares in consideration
for the conversion of debt $(24,000)
Issuance of 600,000 shares in consideration
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
F19
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 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.
F20
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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.
Subsequent to the date of the financial statements, the case was dismissed.
Note 10 - Convertible Promissory Note
---------------------------
The Company borrowed an aggregate of $125,000 as evidenced by a Convertible
Promissory Note with Cadence Capital Corp., (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.
F21
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 onverted 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.
F22
<PAGE>
*Audited financials 1998 previously filed.
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
o Previously filed
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
/s/ John Demoleas
--------------------------------
Date: September 25, 2000 By: John Demoleas, President
Signature
25
