UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the quarterly period ended March 31, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________to__________
Commission file number 000-28461
HIGHLAND HOLDINGS INTERNATIONAL, INC.
----------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0179679
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6227 Highway 393
Crestview, Florida 325399
---------------------------------------- ----------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number (905) 812-9088
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 2000 there were
14,684,897 shares of common stock outstanding.
Transitional Small business Disclosure Format (check one): Yes___ No X.
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page No.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet March 31,2000 1
Income Statements for the Quarter ended March 31, 2000 and
Comparison for March 31,1999 andfor the Year Ended December 31, 1999. 2
Statements of Cash Flows for the Period ended March 31, 2000 and
comparison For March 31, 1999 and Year Ended December 31, 1999 3
Statement of Stockholders' Equity 4
Notes to the Financial Statements 5-17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17-20
Schedule 20
PART 2. OTHER INFORMATION
None
<PAGE>
<TABLE>
<CAPTION>
PART 1
Item 1.
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED BALANCE SHEET
March 31,
2000
Assets -----------
<S> <C>
Current assets
Cash $ 2,762
Investments 2,553
Prepaid expenses 1,104
----------
Total current assets 6,419
Furniture and fixtures-net 2,658
Total assets $ 9,077
==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 2,532
Officer loan payable 69,075
Contract payable 210,000
----------
Total liabilities 281,607
Stockholders equity
Preferred stock- $.001 par value, authorized 5,000,000 shares.
The number of shares outstanding at March 31, 2000 was -0-.
Capital stock- $.001 par value, authorized 20,000,000 shares.
The number of shares outstanding at March 31, 2000 was 14,684,581. 14,685
Additional paid in capital 1,984,354
Accumulated other comprehensive income: Currency translation 5,982
Accumlated deficit during development stage (2,277,551)
----------
Total stockholders equity (272,530)
----------
Total liabilities and stockholders equity $ 9,077
==========
See accompanying notes to financial statements
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period
from inception,
March 23, 1992
For the For the to
period ended period ended March 31,
March 31, March 31, 2000
1999 2000 Unaudited
---- ---- ----------
<S> <C> <C> <C>
Income $ -0- $ -0- $ -0-
Cost of goods sold -0- -0- -0-
----------- ----------- -----------
Gross profit -0- -0- -0-
Operations:
General and administration 34,956 18,882 851,558
Exploration 16,500 17,106 722,975
Non cash compensation-consulting fees 0 0 125,500
Non cash payment for minining interests 891,753
Depreciation and amortization 0 0 4,533
----------- ----------- -----------
Total expense 51,456 35,988 2,596,319
Loss from continuing operations (51,456) (35,988) (2,596,319)
Other income and loss
Gain on sale of securities 0 (11,386) (9,186)
Interest expense 0 (169) (65,046)
Write down of debt due to Brazilian parties 0 0 393,000
----------- ----------- -----------
Total other income and expenses 0 (11,555) 318,768
Net Profit (Loss) from operations $ (51,456) $ (47,543) $(2,277,551)
=========== =========== ===========
Net loss per share-basic $ (0.02) $ (0.01) (0.23)
=========== =========== ===========
Weighted average number of shares outstanding 2,300,055 9,962,675 9,962,675
=========== =========== ===========
See accompanying notes to financial statements
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period
from inception
March 23, 1992
to
For the For the March 31,
period ended period ended 2000
March 31, 1999 March, 31 2000 Unaudited
-------------- -------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $ (51,456) $(47,543) $(2,277,551)
Add items not affecting cash
Depreciation and amortization 0 0 4,533
Issuance of common stock for consulting fees 0 0 125,500
Issuance of common stock for mining interests 891,753
Issuance of shares for conversion of debt 0 237,853
Interest expense 0 0 49,242
Write down of debt due to Brazilian parties 0 (393,000)
Changes in non-cash operating accounts
Prepaid expenses 5,179 0 (1,104)
Accounts payable 2,122 (2,426) 2,532
----------- ----------- -----------
TOTAL CASH FLOWS FROM OPERATIONS (44,155) (49,969) (1,360,242)
CASH FLOWS FROM FINANCING ACTIVITIES
Officer loan payable 19,075 69,075
Contract payable 0 210,000
Proceeds of convertible note 0
Currency translation adjustment 0 0 5,982
Capital contribution 34,503 0 35,024
Sale of stock-net of offering costs 0 0 1,052,667
----------- ----------- -----------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 34,503 19,075 1,372,748
CASH FLOWS FROM INVESTING ACTIVITIES
Marketable securities 27,978 (2,553)
Security deposit 0
Office equipment (1,241) (7,191)
----------- ----------- -----------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (1,241) 27,978 (9,744)
NET INCREASE (DECREASE) IN CASH (10,893) (2,916) 2,762
CASH BALANCE BEGINNING OF PERIOD 20,198 5,678 -0-
----------- ----------- -----------
CASH BALANCE END OF PERIOD $ 9,305 $ 2,762 $ 2,762
=========== =========== ===========
See accompanying notes to financial statements
3
</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 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 forgiveness of loan 10,057 10 147,366 147,376
Issuance of shares for acquisition 2,971 3 43,053 43,056
Currency translation adjustment
Net loss (845,629) (845,629)
----------- -----------
12-31-1996 55,563 55 512,574 (877,479) (364,850)
Issuance of shares for acquisition 285,714 286 99,714 100,000
Issuance of shares for consulting service 187,143 187 65,313 65,500
Sale of shares 42,857 43 14,957 15,000
Sale of shares 257,143 257 89,743 90,000
Issuance of shares for acquisition 35,714 36 62,464 62,500
Issuance of shares to Advisory Board 4,286 4 1,496 1,500
Sale of shares 75,000 75 524,925 525,000
Currency translation adjustment 8,621 8,621
Net loss (1,093,679) (1,093,679)
----------- -----------
12-31-1997 943,420 943 1,371,186 (1,971,158) 8,621 (590,408)
Issuance in consideration for consulting fees 40,000 40 28,460 28,500
Issuance of shares for conversion of debt 1,018,584 1,019 99,981 101,000
Sale of shares through private placement 604,761 605 155,395 156,000
Sale of shares 340,000 340 33,660 34,000
Sale of shares through private placement 2,738,133 2,738 79,406 82,144
Beneficial conversion feature on loans 41,248 41,248
Foreign currency translation (940) (940)
Net loss (56,445) (56,445)
----------- -----------
12-31-1998 5,684,898 $ 5,685 $1,809,336 (2,027,603) 7,681 (204,901)
Capital contribution 8,024 8,024
Sale of shares through private placement 7,600,000 7,600 106,400 114,000
Issuance of shares for conversion of debt 799,683 800 23,200 24,000
Issuance of shares for consulting fees 600,000 600 29,400 30,000
Beneficial conversion feature on loans 7,994 7,994
Currency translation adjustment (1,699) (1,699)
Net loss (202,405) (202,405)
----------- ----------- -----------
12-31-1999 14,684,581 $ 14,685 $ 1,984,354 $(2,230,008) 5,982 (224,987)
Net loss (47,543) (47,543)
03-31-2000 14,684,581 $ 14,685 $ 1,984,354 $(2,277,551) $ 5,982 (272,530)
========== =========== =========== =========== =========== ===========
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.
4
</TABLE>
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Note 1. Organization of Company and Issuance of Common Stock
----------------------------------------------------
a. Creation of the Company
Highland Holdings International, Inc. (the "Company") was formed on March
23, 1992 under the laws of the State of Delaware as Northern Medical, Inc. with
10,000,000 shares of common stock authorized, $.001 par value each and 1,000,000
shares of preferred stock, $.001 par value each. On October 30, 1992, the
certificate of incorporation was amended to change the name of the Company to
Normed Industries, Inc. The certificate of incorporation was again amended on
January 17, 1995 increasing the number of shares of common stock to 20,000,000,
$.001 par value each and 5,000,000 shares of preferred stock, $.001 par value
each. On January 24, 1995, the Company forward split the number of shares of
common stock outstanding in a ratio of 17,500 to 1 restating the number of
shares of common stock outstanding to 1,750,000. On March 28, 1995, the Company
amended its certificate of incorporation to change its name to Highland
Resources, Inc. On November 3, 1997, the Company amended its certificate of
incorporation to change its name to Highland Holdings International, Inc.
b. Description of the Company
The Company is an exploration stage company involved in the acquiring and
development of a gold mining concession in Honduras. At the report date mineral
claims, with unknown reserves, had been acquired. At present, the Company is in
the exploration stage and there is no assurance that any of its prospects or
properties contain a commercially viable ore body (reserves) until further
geologic exploration work is done, and a final feasibility study based upon such
work is concluded.
c. Issuance of Capital Stock
All shares issued reflect a 17,500 forward split on January 24, 1995; a 30
to 1 reverse split on April 4, 1997 and a 7 to 1 reverse split on July 1, 1998
and such the per share amounts have been adjusted to reflected the adjusted
number of shares.
On March 31, 1992, the Company issued 8,333 shares of common stock to Mr.
Roger Fidler in consideration for the contribution of $1,500 in cash and $500 in
organization costs or $0.24 per share.
On March 13, 1995, The Company entered into an agreement to obtain the
alluvial gold and diamond mineral rights in its Lagoa da Pedra Project of the
Lagoa da Pedra Partnership for 34,202 shares of common stock with an aggregate
consideration of $293,197 or $8.57 per share.
On September 11, 1996, the Company issued 10,057 shares of common stock in
consideration for the forgiveness of $147,376 in loans to the Company or $14.65
per share.
On September 11, 1996, the Company issued 2,971 shares of common stock as
part consideration in the acquisition of Minas Novas valued at an aggregate
consideration of $43,056 or $14.49 per share.
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.
5
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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
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 $31,500 or $0.88 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 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.
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 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 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 sold 444,444 shares of common stock for
$26,666 or $0.06 per share.
Note 2- Summary of Significant Accounting Policies
------------------------------------------
a. Basis of Financial Statement Presentation
The accompanying unaudited financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
6
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
incurred net losses of $2,277,551 for the period from inception, March 23, 1992,
to March 31, 2000. These factors indicate that the Company's continuation as a
going concern is dependent upon its ability to obtain adequate financing. The
Company is anticipating the need to do further private placements to bring the
mine in Honduras into production and with the completion of its additional
private placement and with the increase in working capital, the Company will be
able to continue to develop the Company's mining concession and begin
production. The Company will require substantial additional funds to finance its
business activities on an ongoing basis and will have a continuing long-term
need to obtain additional financing. The recoverability of the amounts shown for
the mining projects and the ability of the Company to continue as a going
concern are dependent upon its ability to raise capital, achieve profitable
operations from its mining activities, and on a satisfactory regulatory
environment governing the development and operation of mining properties in
Honduras.
The financial statements presented consist of the consolidated balance sheet
of the Company as at March 31, 2000 and the unaudited balance sheet as at March
31, 2000 and the related consolidated statements of operations, stockholders
equity and cash flows.
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
c. 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.
d. 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.
e. 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.
f. Revenue Recognition
Revenue is recognized when extracted minerals are shipped.
g. 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 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.
7
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Assets and liabilities were translated by using the exchange rate at the
balance sheet date;
Revenues, expenses, gains, losses were translated by using the weighted
average exchange rate for the period from January 1, to March 31, 2000.
The translation loss for the period from January 1, to March 31, 2000 was
reported separately as a component of shareholder's Equity (as a CTA -cumulative
translation adjustment); The capital account in Shareholder's equity was
translated by using the historical exchange rate.
h. 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.
i. 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.
j. 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.
k. Earnings per share
Basic earnings per share are calculated on the basis of the weighted
average number of common shares outstanding for each period.
Note 3 - Acquisition of Assets
---------------------
The following claims have not been proven to have a commercial minable ore
reserve and therefore all costs for exploration and retaining the properties
have been expensed
a. Lagoa da Pedra Project
On March 13, 1995 when the Company entered into an agreement to purchase
the alluvial mineral rights in its Lagoa da Pedra Project located on the
Jequitinhonha river, near Diamantina, Minas Gerais, Brazil from the Lagoa da
Pedra Partnership (the "Partnership") for 34,202 shares of common stock. The
partnership consisted of Charles Stetler, a geologist (owning 12.5% of the
Partnership), Jose Lourenco Viana Neto ("Viana") (owning 12.5% of the
Partnership), Enterprise Gold Limited,a partnership located in Monaco (owning
50% of the Partnership) and Perth Limited of the British Virgin Islands (owning
25% of the Partnership). Charles Stetler and Viana are experienced in the mining
industry in Brazil and will manage the operations in Brazil and EGL and Perth
8
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
are investors with international business affiliations that assisted in the
corporate development of the operation. The transaction has been accounted for
as a reverse merger and is accounted for at historical cost as if a pooling of
interests had occurred with the recording of the net assets acquired at their
historical book value. The financial statements of the Company have been
retroactively restated to include the combined statements of operations and cash
flows for the period from inception, March 22, 1992, to March 13, 1995 and the
statements of operations and cash flows of Lagoa da Pedra Partnership for the
period March 13, 1995. The aggregate moneys spent on the project to date
represent $293,197.
The contract for purchase required a payment of $30,000 with a down payment
of $5,000 which was paid on May 10, 1993 by the Lagoa da Pedra Partnership and
the balance of $25,000 to be paid by December 31, 1996 by the Loagoa da Pedra
Partnership. The terms of the agreement were modified on various occasions to
extend the time required to pay the balance of $25,000.
As of December 31, 1996, the Company had concluded that the Logoa da Pedra
Project is not able to yield production sufficient to offset the required
investment in exploration and commercial production costs and had charged the
mineral costs $446,967 accumulated for this project were charged to operations
for the year ending December 31, 1996.
b. Option on Acquisition of Minas Novas
On June 27, 1996, the Company entered into an agreement with Minas Novas
Pesquisa E Lavra S.A. ("Minas Novas"), a Brazilian corporation for the
acquisition of 95% of the issued and outstanding stock of Minas Novas for a
purchase price of $380,000.
On September 1, 1997, the agreement was modified as to the terms and
conditions as follows:
The Company was given recognition of the $15,000 paid pursuant to the
original agreement on June 27, 1996.
On September 11, 1997, 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 250,000 shares of
common stock pursuant to the agreement with Minas Novas to three individuals
named in the agreement as follows: 137,500 shares to Friedrich Ewald Renger,
87,500 shares to Victor Eugenio Suckau and 25,000 shares to Lothar Wirth. These
shares were issued as a further inducement 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 250,000 shares at $2.00 per share for
an aggregate consideration of $500,000 by notifying the company of Minas Nova's
intention in writing by September 1, 1998 and must effect payment within 120
days. Thirty days after written notice, interest will accrue at the rate of 2%
per month. 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 250,000 shares of restricted stock, these shares
can only be sold in blocks with a combined maximum value of $100,000 in any
given month.
9
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
The Company also agreed begin to advance money as follows:
$5,000 per month for the next 12 months for payment of administration costs
commencing September 1, 1997.
$20,000 toward the costs of the elaboration of the Economic Development
Plan as required by the Brazilian government.
$80,000 for working capital commencing December 1, 1997.
The default of any of the obligations of either the Company or Minas Novas
that is not corrected in a maximum period of 30 days, counting the date of the
specific notification will cause the dissolution of the contract and subject the
Company to a penalty of $210,000 and the return to each party the shares issued
pursuant to this contract.
As of December 31, 1997, the Company reflected a total Contract Payable of
$603,000 consisting of a $103,000 balance for monies due towards the 4 monthly
payments of $5,000 due for 1997, the $80,000 and the $20,000 less $17,000 paid
as of December 31, 1997 and the liability for the repurchase of 250,000 shares
of common stock for an aggregate consideration of $500,000.
The Company has charged operations for an aggregate of $240,000
representing the $120,000 in operating monies due Minas Novas and $120,000
representing the difference in the purchase price of $120,000 due to the
penalties for prolonging payment of the original terms of purchase ($500,000 for
the option of the 250,000 shares at $2.00 less the original purchase price of
$380,000).
As of December 31, 1998, the Company has concluded that the Minas Novas
Project is not able to yield production sufficient to offset the required
investment in exploration and commercial production costs and has charged the
cost to purchase the Minas Novas project of $380,000 to operations for the year
ending December 31, 1998. Management is also of the opinion that Minas Novas
Pesquisa E Lavra S.A. has not lived up to the terms and conditions of the
contract for purchase, exploration and development entered into on September 11,
1997 and has discontinued any further relationship with the shareholders of
Minas Novas. The Company has also placed a stop transfer order on the 250,000
shares of common stock that were issued as a further inducement and as
additional consideration and collateral for the consummation of this purchase
agreement and has requested the return of these shares. Management is also of
the opinion that it is not liable for default of monies due under the terms of
this agreement and has written off additional liabilities aggregating $603,000.
Pursuant to the terms and conditions of the agreement, the Company may be liable
for liquidated damages of up to $210,000 if litigation should occur.
As of March 31, 2000, 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 2,000,000 shares of common stock to various parties in consideration for the
purchase of 1 unpatented mining claims situated in Pima County, Arizona, valued
at $20,000.
This agreement was memorialized on January 23, 1998 with the actual
transfer and registration of title to the 18 mining claims. As of December 31,
1998, the Company has concluded that the Arizona Project is not able to yield
production sufficient to offset the required investment in exploration and
commercial production costs and has charged the mineral costs of $29,658
accumulated for this project and has charged operations for the year ending
December 31, 1998.
10
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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%.
Note 4- Related Party transactions
--------------------------
a. Issuance of Common Stock
On March 31, 1992 the Company issued 100 common shares to Mr. Roger Fidler
in consideration for $1,500 in cash and the contribution of $500 in organization
costs.
On December 16, 1997, the Company issued ,pursuant to regulation D, 30,000
shares of common stock to 6 advisory board members in exchange for services over
a period of 1 year valued at $1,500 or $.05 per share.
On 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 September 1, 1996 and May 5, 1997 respectively, the Company issued an
aggregate of 1,185 and 28,571 shares of common stock to Charles Stetler, former
President, in consideration for services valued at $17,183 and $28,571
respectively.
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.
11
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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.
As of September 30, 1999, the Company sold an aggregate of 8,217,142 shares
of common stock for an aggregate of $173,506 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 for an aggregate
consideration of $5,000 or $.70 per share.
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.
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 March 31, 2000, the Company has not paid any salary to
any of the officers.
Note 5 - Preferred Stock
---------------
The certificate of Incorporation was amended on January 17, 1995 increasing
the number of shares authorized from 200 common shares with a par value of $.001
to an aggregate number of shares of stock which the corporation shall have
authority to issue is 25,000,000, which are divided into 5,000,000 shares of
Preferred stock with a par value of $.001. The Preferred Shares have the
following provisions:
a. Dividends are cumulative.
Preferred shareholders are entitled to receive dividends at the rate of
$.12 per share per annum and no more, payable in cash quarterly commencing March
31, 1995 and thereafter on the last day of September, December, March and June
of each year on any Preferred series A shares ("Preferred Stock") outstanding.
Dividends that are in arrears must be paid before any distribution shall be paid
on common stock.
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
12
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
common stock of the Company. The number of shares of common stock into which
each share of the Preferred Stock may be converted shall be determined by
dividing the initially issuable conversion price of $2.50 subject to adjustment
by the conversion price in effect at the time of the conversion. The conversion
price from time to time in effect shall be subject to adjustment as follows: In
case the Company shall at any time subdivide the outstanding shares of common
stock, or shall issue a stock dividend on its outstanding common stock, the
conversion price in effect immediately prior to such subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Company
shall at any time combine the outstanding shares of common stock, the conversion
price in effect immediately prior to such combination shall be proportionately
increased, effective at the close of business on the date of such subdivision,
dividend or combination, as the case may be.
e. Contingent Liability
The Company shall at all times reserve and keep available out its
authorized but unissued common stock, solely for the purpose of effecting the
conversion of the Preferred Shares, the full number of shares of common stock
deliverable upon the conversion of all Preferred Stock from time to time
outstanding.
At March 31, 2000, the number of shares of preferred stock outstanding was
-0-.
Note 6 - Furniture and Fixtures
----------------------
Furniture and fixtures consisted of the following at:
December 31,
1999
Office equipment $ 7,191
Accumulated depreciation 4,533
--------
Balance $ 2,658
Note 7 - Income Taxes
------------
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of March 31, 2000, the Company had no
material current tax liability, deferred tax assets, or liabilities to impact on
the Company's financial position because the deferred tax asset related to the
Company's net operating loss carry forward and was fully offset by a valuation
allowance.
At March 31, 2000, the Company has net operating loss carry forwards for
income tax purposes of $2,277,551. 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.
13
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
The components of the net deferred tax asset as of March 31, 2000 are as
follows:
Deferred tax asset:
Net operating loss carry forward $ 741,462
Valuation allowance (741,460)
----------
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 March 31, 2000.
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 8 - Cash Flow Information
---------------------
The following is supplemental cash flow information for the period from
inception , March 23, 1992, to December 31, 1997
Issuance of 34,202 common shares for
acquisition of mineral properties.
on March 13, 1995 $(297,193)
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 717,125
--------
Total $ -0-
The following is supplemental cash flow information for the year ended
December 31, 1998:
Issuance of 380,000 common shares in consideration
of consulting fees $(76,500)
Issuance of 599,950 common shares in consideration
of the conversion of debt (96,000)
Capital Stock 172,500
--------
Total $ -0-
14
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Note 9 - Commitments and Contingencies
-----------------------------
a. Stock Option Plan and Stock Grant Program
In June 1995, the Company adopted a non-qualified stock option plan and a
stock grant program with the following provisions.
1. Stock Option Plan: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers and consultants.
Under this plan, no employee may receive more than 50,000 options. Options are
nontransferable and expire if not exercised within two years. The options may
not be exercised by the employee until after the completion of two years of
employment with the Company. The options are issuable to officers, key employees
and consultants in such amounts and prices as determined by the Board of
Directors. As of December 31, 1997, no options have been granted pursuant to
this plan.
2. Stock Grant Program: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers, directors, and
consultants. Under this plan, no employee may receive more than 100,000 options.
The program requires the employee to remain in the employ of the company for at
least one year following the grant and to agree not to engage in any activity
which would be considered in competition with the Company's business. If the
employee violates any one of these conditions the ownership of the stock issued
under the program shall revert back to the Company. The stock issued under the
program is nontransferable for two years. As of December 31, 1998 and September
30, 1999, no options have been granted pursuant to this plan.
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.
15
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Payment for these services is 1,300,000 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. The Company
has reserved 700,000 shares of common stock pending delivery of the shares.
f. Litigation
The Company has no litigation pending at present.
Note 10 - Convertible Promissory Note
---------------------------
The Company borrowed an aggregate of $125,000 as evidenced by a Convertible
Promissory Note, (the "Note") dated March 26, 1998 and due September 22, 1998.
The Company received net proceeds of $109.635 after paying interest in advance
of $15,635. The Note is payable pursuant to the following terms and conditions:
Interest is payable at the rate of 12% in advance upon the closing of the
issuance of this Note. The holder of this Note has the right to convert this
note, in whole or in part at any time into shares of common stock, at the lesser
of 75% of the lowest closing bid price for the shares quoted on the Bulletin
Board for the 5 day trading period ending on the day prior to the conversion
date, or the lowest closing bid price for the shares quoted on the Bulletin
Board for the five day trading period ending on the day prior to the date.
Notwithstanding any provisions of this Note, in no event will the Holder be
entitled to convert this Note into shares to the extent that after such
conversion, the number of shares of common stock beneficially owned by the
Holder and its affiliates and the number of shares issuable upon the conversion
of this Note would result in beneficial ownership and its affiliates of more
than 4.9% of the issued and outstanding shares of common stock as of the date of
the conversion.
The number of shares is also subject to various conversion price
adjustments and adjustment for reverse stock splits.
The Company has agreed to use the proceeds of this Note for working capital
and not to pay any indebtedness of the Company.
As of December 31, 1998, the Company had converted $101,000 in debt into an
aggregate of 1,018,584 shares of common stock for an average conversion price of
$.10 per share.
16
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
As of March 31, 2000, the Company converted the balance of $24,000 into
799,683 shares of common stock in consideration for the conversion of $24,000 in
debt $.03 per share.
On the dates of conversion of the promissory notes, the conversion prices
were less than the fair values of the common stock, hence a beneficial
conversion feature is attached to these convertible notes. For the year ended
December 31, 1998 and 1999, the amount of this beneficial conversion feature is
$41,248 and $7,994 respectively and has been recorded as interest expense and
additional paid-in-capital for the years ended December 31, 1998 and 1999.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDING MARCH 31, 2000 AND THE PERIOD FROM INCEPTION
(MARCH 23, 1992) TO MARCH 31, 2000.
Exploration Stage Activities:
The Company has been an exploring stage enterprise from its inception
March 23, 1992, to March 31, 2000. The Company is an exploration stage company
involved in the exploration of a gold mining concession in Honduras, which began
in October, 1997.
The Company was formed on March 23, 1992 and remained inactive until
March 13, 1995 when the Company entered into an agreement to purchase the
alluvial mineral rights in its Lagoa da Pedra Project from the Lagoa da Pedra
Partnership for 34,202 of the Company's common shares. As of December 31, 1996,
the Company had concluded that the Logoa da Pedra Project is not able to yield
production sufficient to offset the required investment in exploration and
commercial production costs and had charged the 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,
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 2,000,000 shares of common stock to various parties in
consideration for the purchase of 1 unpatented mining claims situated in Pima
County, Arizona, valued at $20,000. 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 March 31,
2000, the Company has charged an aggregate of $722,975 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.
17
<PAGE>
To finance these activities, the Company sold through the period from
1995 through September 30, 1997 an aggregate of 300,000 shares of common stock
with an aggregate consideration of $105,000. The Company has sold for the period
of October, 1997 through December 31, 1999 an aggregate of 12,798,114 shares of
common stock for an aggregate consideration of $954,506.
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.
During this exploration period, the Company has been financed through
loans that were subsequently converted to 965,562 shares of common stock
aggregating $265,741, and through the sale of 11,736,528 shares of common stock
aggregating $990,000.
Results of Operations for the period ended March 31, 2000 as compared
to the period ended March 31, 1999. For the year period ended March 31, 2000,
the Company has not generated any revenue from the production and sale of
minerals. In January 2000 Highland Resources Honduras S. A. hired Pecas
Consultores to handle all administrative and personnel functions in Honduras
including moving its offices to a new location in order to reduce expenses and
oversee the exploration work on the Zapote I property.
The Company's general and administrative costs aggregated
approximately $18,882 for the period ended March 31, 2000 as compared to $34,956
for the period ended March 31, 1999 representing a decrease of $16,074. This
decrease represents managements desire to restrict available moneys to
exploration of the Honduras concession during the year ended March 31, 2000. The
reduction in expenses for the quarter ended March 31, 2000 include, reduction in
salary expense, reduction in travel expenses and the focus by the Company on
utilizing available cash in developing the property in Honduras and the
cessation of expenses related to the Brazil properties.
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 March 31, 2000 of $2,277,551. The Company has not generated
positive cash flow from operations in 2000. These factors indicate that the
Company's continuation as a going concern is dependent upon, among other things,
its ability to obtain adequate financing.
The Company's cash balance at March 31, 2000 was $2,762. For the
quarter ended March 31, 2000, the Company continued to be funded in part from
the sale during earlier years of 7,600,000 shares of common stock aggregating
$114,000 and from the proceeds from the sale of a convertible bonds and the
subsequent conversion into an aggregate of 799,999 shares of common stock for an
aggregate of $49,032 and an officer loan of $50,000. 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 March 31, 2000.
Interest was payable at the rate of 12% in advance upon the 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 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.
For the quarter ended March 31, 2000 the Company expended cash as
follows: General and Administrative $18,882; Exploration $17,106; and loss on
sale of securities $11,386; and interest expense $169.
During the first quarter of 2000, the Company restricted its expenses
for exploration expenses to the Honduras project.
18
<PAGE>
As of December 31, 1998, the Company has concluded that the Minas Novas Project
is not able to yield production sufficient to offset the required investment in
exploration and commercial production costs and has charged the cost to purchase
the Minas Novas project of $380,000 to operations for the year ending December
31, 1998. Management is also of the opinion that Minas Novas Pesquisa E Lavra
S.A. has not lived up to the terms and conditions of the contract for purchase,
exploration and development entered into on September 11, 1997 and has
discontinued any further relationship with the shareholders of Minas Novas. The
Company has also placed a stop transfer order on the 250,000 shares of common
stock that were issued as a further inducement and as additional consideration
and collateral for the consummation of this purchase agreement and has requested
the return of these shares. Management is also of the opinion that it is not
liable for default of monies due under the terms of this agreement and has
written off additional liabilities aggregating $603,000. Pursuant to the terms
and conditions of the agreement, the Company may be liable for liquidated
damages of up to $210,000 if litigation should occur
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 250,000 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.
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, 1999 the Company had a tax loss
carry-forward of $2,277,551. 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.
19
<PAGE>
If management is unable to provide funds from private sources or raise
funds through private or public offers, this could materially jeopardize the
Company's ability to continue as a going concern and may even cause the Company
the continued ownership of the present mineral holdings.
To date, the Company is an exploration Stage Company involved in the
application and development of a gold mining concession in Honduras which it
began in October 1997.
--------------------------------------------------------------------------------
SIGNATURES:
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HIGHLAND HOLDING INTERNATIONAL, INC.
(Registrant)
/s/ JOHN DEMOLEAS
-------------------------------------
John Demoleas: President
Date: July 7, 2000
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
PERIOD TYPE 3-MOS
FISCAL YEAR END DEC 31,2000
PER END MARCH 31, 2000
CASH $ 2,762
SECURITIES $ 2,553
RECEIVABLES $ 0
PREPAID EXPENSES $ 1,104
CURRENT ASSETS $ 9,077
FIXED ASSETS $ 2,658
TOTAL ASSETS $ 9,077
CURRENT LIABILITIES $ 71,607
LONG TERM LIABILITIES $ 210,000
CAPITAL STOCK $ 14,685
PAID IN CAPITAL $ 1,984,354
RETAINED EARNINGS $(2,277,551)
SALES $ 0
EXPENSES $ 35,988
NET INCOME (LOSS) $ (35,988)
STOCKHOLDERS EQUITY $ (272,530)
20
