SECURITIES AND EXCHANGE COMMISSION
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Washington, D. C. 20549
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FORM 10-SB AMENDMENT #2
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
of incorporation or organization) Identification No.)
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 OT SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 par value 20,000,000
PREFERRED STOCK $.001 par value 5,000,000
(Title of Class)
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL. INC.
TABLE OF CONTENTS
Part Item Description of Item Page
- ---- ---- ------------------- ----
Table of Contents 2
Part I Item 1 Description of Business 3
Business of the Issuer 3
Item 2 Management's Discussion and Analysis 4
and results of Operations
Forward Looking Statements 4-5
Liquidity and Capital Resources 5
Reports to Security Holders 9
Impact of the Year 2000 on Information Systems 9
Item 3 Description of Property 9
Item 4 Security Ownership of Certain Beneficial Owners 9
and Management
Item 5 Directors, Executive Officers, Promoters and
Control Persons 10
Directors and Executive Officers 10
Business Experience 10
Item 6 Executive Compensation 11
Item 7 Certain Relationships and Related Transactions 11
Item 8 Description of Securities 11
Common Stock 11
Preferred Stock 11
Part II Item 1 Market Price of and Dividends on Registrant's 11
Common Equity and Related Shareholder matters
Market Information 12
Holders 12
Dividends 12
Item 2 Legal Proceedings 12
Item 3 Changes in and Disagreements with Accountants 12
Item 4 Recent Sales of Unregistered Securities 12-14
Item 5 Indemnification of Directors and Officers 14
Part F/S Item 1 Financial Statements
Audited Statement December 31, 1998 15-34
Financial Data Schedule
Part III Item 1 Index to Exhibits
* Articles and Amendments
* Bylaws
* Specimen Certificate
Signature Page
* Filed with SB-10
<PAGE>
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 but remained dormant until 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. 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.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE YEARS ENDING DECEMBER 31, 1997
AND 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
AND THE PERIOD FROM INCEPTION (March 23, 1992) T0 SEPTEMBER 30, 1999.
Exploration Stage Activities:
The Company has been a exploration stage enterprise from its inception
March 23, 1992 to September 30, 1999. 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.
After two years of exploration work, the project was deemed unfeasible and
the company remained essentially dormant 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 a exploration Stage Company involved in the
application and development of a gold mining concession in Honduras which it
began in October 1997.
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
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
<PAGE>
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.
During this exploration period, the Company has been financed through loans
that were subsequently converted to shares of common stock aggregating $265,741
and through the sale of shares of common stock aggregating $990,000.
Results of Operations for the year ended December 31, 1998 as compared to
the year ended December 31, 1997.
For the years ending December 31, 1997 and 1998, the Company had no income
from the production of mineral bearing ores.
The Company's general and administrative costs aggregated approximately
$323,168 for the year ended December 31, 1998 as compared to $324,672 for the
year ended December 31, 1997 representing an decrease of $1,504. The level of
overall spending for general and administrative expenses remained essentially
level from the previous years spending which includes office expense of $58,764;
consulting fees of $89,431 incurred for public relations; Rent of $12,413,
payroll of $96,521; travel of $20,823; professional fees of $11,795 and a gain
from foreign exchange of $33,421.
Results of Operations for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998.
For the nine months ended September 30, 1998 and 1999, the Company has not
generated any revenue from the production and sale of minerals.
The Company's general and administrative costs aggregated approximately
$54,610 for the nine months ended September 30, 1999 as compared to $299,416 for
the nine months ended September 30, 1998 representing a decrease of $244,806.
This decrease represents focusing available moneys on exploration and
development of the Honduras concession during the nine months ended September
30, 1999. Moneys were spent as follows: professional fees of $6,596; and office
expenses of $20,109; salaries of $24,110 and a gain on foreign exchange of
$3,795. An expense breakdown for the nine months ended September 30, 1998
included office expense $52,621; Consulting and public relations of $87,500;
rent of $9,200; payroll of $93,821; travel of $17,483; Professional fees of
$10,950 and gain on foreign exchange of $27,841. Expenses for the nine months
ended September 30, 1998 included expenses related to a separate office for
administration which was closed at the end of 1998 and the focus of the Company
on developing the property in Honduras and the cessation of expenses related to
the Brazil properties.
Liquidity and Capital Resources.
The Company's cash balance at December 31, 1998 and September 30, 1999, was
$20,198 and $900 respectively. Working capital at December 31, 1998 and
September 30, 1999 was positive at December 31, 1998 by $485 and negative at
September 30, 1999 by $15,255 respectively. For the year ended December 31,
1998, the Company continued to be funded in part by the sale of shares of common
stock aggregating $342,000, a gain on foreign exchange aggregating $7,681 and
the proceeds from the sale of a convertible bonds aggregating $22,365. For the
nine months ended September 30, 1999, the Company was funded in part from the
<PAGE>
sale of shares of common stock aggregating $136,365, and an increase in accounts
payable of $12,768. For the year ended December 31, 1998, the Company expended
cash as follows: the purchase of office equipment aggregating $1,636. For the
nine months ended September 30, 1999, the Company expended cash as follows:
$89,814 for further exploration and development of the Company's mineral
properties.
Management believes that it will be required raise funds in additional to
funds provided by personal resources aggregating $300,000 through private
placements. The proceeds from these private placements will be sufficient to
satisfy Management's objectives of purchasing equipment for office, production
and product development of $100,000, conduct ore testing amounting to $30,000;
pay consultants $80,000; salaries of $30,000; office expenses of $30,000;
telephone of $10,000; and pay travel expenses of $20,000.
Income tax: As of December 31, 1998 and September 30, 1999, the Company had
a tax loss carry-forward of $1,271,87 and $1,358,266 respectively. The Company's
ability to utilize its tax credit carry-forwards in future years will be subject
to an annual limitation pursuant to the "Change in Ownership Rules" under
Section 382 of the Internal Revenue Code of 1986, as amended. However, any
annual limitation is not expected to have a material adverse effect on the
Company's ability to utilize its tax credit carry-forwards.
The Company 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 the continued capital requirements, the
costs and timing of expansion of sales, marketing activities, 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 a development 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.
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
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Honduran Mining Law.
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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
<PAGE>
Honduras call all request exploration permits and mining concessions. All
metallic minerals are open to exploration on a permit basis, however gas and oil
are regulated by a separate code of law. Mining and exploration activities are
considered a public utility and thus take priority over the private exploration
of land. The development of mineral properties is divided into three phases
under the Honduras Mining Code.
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.
Importation of Mining Equipment
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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.
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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.
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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
<PAGE>
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 does not anticipate any difficulty in the
future in complying with all applicable Laws and Regulations in the performance
of its operations. The Company cannot predict the impact of possible changes in
response to future legislation, rules or governmental requirements including
regulations which may affect the ability of the company, as well as others in
the industry, to develop and market products. However, we do not presently
believe that existing applicable legislative and administrative rules and
regulations will have a significant impact on operations.
COMPETITION
The Company is in an industry the selling price of which is controlled by buyers
in London and New York. The Company is under-capitalized to compete against the
major gold producing companies which are located around the world. The Company
will be dependent upon external forces in the sale of its products. The present
selling price of gold, slightly under US$300 per oz., is a price at which the
Company is capable of competing. There can be no assurance that the Company can
develop superior or more cost-effective products than its competitors, or that
it can successfully market its product.
ECONOMIC RISKS
Local, National and international economic conditions may have a substantial
adverse effect on the efforts of the Company. A downturn in the United States
economy could reduce the amount of disposable cash that individuals are willing
to pay for products made with gold or the amount they are willing to purchase.
EMPLOYEES
At the present time the Company employs a total of 14 mining personnel at the
Honduran properties. There are no employees in the United States.
RESEARCH AND DEVELOPMENT
During the first three years of operation, the total cost of research and
development was $1,145,010.
PATENTS AND TRADEMARKS
The Company does not own any Patents or Trademarks and does not have any
intention at the present time to file any Patent or Trademark Applications.
<PAGE>
REPORTS TO SECURITY HOLDERS
Prior to filing this Form 10-SB, the Company has not been required to deliver
annual reports. However, once we become a reporting company, we shall deliver
annual reports to securities holders as required by the Securities Exchange Act
of 1934 (the "Exchange Act"), as amended. Also we shall deliver annual reports
to securities holders as required by the rules or regulations of any exchange
upon which our shares may be traded. If we are not required to deliver annual
reports, it is not likely that we will go to the expense of producing and
delivering such reports. If we are required to deliver annual reports, such
reports will contain audited financial statements as required.
Prior to the filing of this Form 10-SB, we have not filed reports with the
Securities and Exchange Commission (the "Commission"). Once we become a
reporting company, management anticipates that Forms 3, 4, 5, 10-K-SB, 10-Q-SB,
8-Kand Schedules 13D along with appropriate proxy materials will have to be
filed as they come due. If we issue additional shares, then we may file
additional registration statements for those shares.
IMPACT OF Y2K ON COMPANY
The Year 2000 issue arising out of computer programs is not expected to affect
the Company, its mining operations or its plans for sales. We intend to timely
update our accounting and other systems which are determined to be affected by
Year 2000 by purchasing Year 2000 compliant equipment including software or
hardware available from retail vendors at reasonable cost. We have not yet
contacted any of our vendors to determine their status as to the Y2K compliance.
The Company does not know the status of Honduras as a country and the effect of
Y2K on the Country.
ITEM 3. DESCRIPTION OF PROPERTY
The three mineral properties are a) the Zapote (Rey del Oro Mine) with 4 mining
concessions; b) the Jimingula based metal exploration claim and, c) The Derena
gold exploration claim. At the Zapote mining concessions, high-grade gold
near-surface mineralization has been sampled in mine working indicating at least
five god deposits with a potential resource of 1,000,000 troy oz. Other areas on
the concession block may also contain deposits but as yet are not sampled at
depth.
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.
NUMBER OF SHARES OWNED PERCENTAGE OF
NAME (COMMON STOCK) SHARES ISSUED
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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%
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The
Directors, Executive Officers, Promoters and Control Persons are listed below:
Name Age Position
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John P. Demoleas 40 Chairman, President & CEO
George Nadas 46 Secretary/Treasurer and Director
Charlie Stetler 50 Director
Annette Reichmann 60 Director
The biographies of the Directors and Officers are set forth below. All Directors
hold office until the next annual shareholder's meeting or until their death,
resignation, retirement or until their successors have been elected and
qualified. Vacancies in the existing Board are filled by a majority vote of the
remaining Directors.
Mr. John P. Demoleas. Chairman, President and CEO. May 1998 to Present
Since 1988 Mr. Demoleas has served as Excutive 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
Mr. Nadas a founding partner in Reiter & Nadas Chartered Accountants has a
strong financial background which includes Controller of VasCATH,, Inc. a
medical products manufacturer, and V.P. Finance of Safety House of Canada, Ltd.
He earned his Bachelors degree in mathematics with Honors from the University of
Waterloo, Ontario, Canada.
Mr.Charles Frederick Stetler, Director March 1995 to Present
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.
ITEM 6. EXECUTIVE COMPENSATION
No cash compensation has been paid to any executive.
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Director, Officer, Promoter or Control Person is, or has been in debt to the
Company.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, $.001 par
value of which on the 30th of November 1999, 14,684,897 shares were issued and
outstanding. The company is authorized to issue 5,000,000 shares of Preferred
Stock $.001 par value of which on the 30th of November 1999 no shares were
issued and outstanding. There are 288 shareholders of common stock as of
11/30/99.
Shareholders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors without any preference. Holders of
Common Stock are entitled to one vote per share. Cumulative voting is not
allowed and thus holders of more than 50% of the shares voting for Directors can
elect all Directors. The holders of Common Stock have no preference rights to
purchase new issues of the securities of the Company.
Dividends may be paid if, and when, declared by the Board of Directors. All
shares are non-assessable and fully paid.
Upon liquidation or dissolution of the company, holders of Common Stock are
entitled to receive pro rata, either in cash or in kind, all of the assets of
the Company after payment of the debts. There are no redemption, conversion or
pre-emptive rights attached to the Common Stock.
Transfer Agent and Registrar
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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 HHIIe.
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
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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.
<PAGE>
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.
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.
<PAGE>
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 $624 or $0.21 per share. 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 $20,000
or $.07 per share.
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 $13,100 in services or $.07 per
share.
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 $31,500 or $0.88 per
share.
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 the year 1998, the Company issued, pursuant to regulation D, Rule 504 an
aggregate of 380,000 shares of common stock for an aggregate consideration of
$62,500 in consulting fees or an average of $.16 per share
During 1998, the Company sold, pursuant to Regulation D Rule 504, 599,950 shares
of common stock through the initial sale of $96,000 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.
<PAGE>
The Company sold, pursuant to Regulation D Rule 504, an aggregate of 3,156,767
shares for an aggregate consideration of $90,000 through the completion of a
private placement at $.03 per share.
As of September 30, 1999, the Company sold, pursuant to Regulation D Rule 504,
355,555 shares of common stock for $22,365 or $0.06 per share.
Related Party transactions
- --------------------------
On March 13, 1995 when the Company entered into an agreement to purchase the
alluvial mineral rights in the Lagoa da Pedra Project from the Lagoa da Pedra
Partnership for 7,182,315 of the Company's common shares, pursuant to regulation
D,.
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate of
1,310,000 shares of common stock to various related parties to the Company in
consideration for services of $13,100 in services valued at $.01 per share.
On December 16, 1997, the Company issued, pursuant to regulation D, 30,000
shares of common stock to 6 advisory board members in exchange for services over
a period of 1 year valued at $1,500 or $.05 per share.
On February 4, 1998, the Company issued, pursuant to regulation D, 7,143 post
split shares of common stock to John Demoleas, President, in consideration of
consulting fees valued at $5,000 or $0.10 per share.
On July 10, 1998, the Company sold 190,476, pursuant to Rule 504, post split
shares of common stock to John Demoleas, President, in consideration for $40,000
or $0.21 per share.
On September 9, 1999, the Company issued, pursuant to Rule 504, 726,666 shares
of common stock to John Demoleas in consideration for services valued at $14,533
or $0.02 per share.
As of September, 1999, the Company sold, pursuant to regulation D, 7,300,000
shares of common stock to John Demoleas for an aggregate consideration of
$104,000 or $0.014 per share.
As of September 30, 1999, the Company sold, pursuant to regulation D, 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, pursuant to regulation D Rule 504,
7,300,000 shares of common stock for $104,000 or $0.01 per share to Mr. John
Demoleas, President.
On September 30, 1999, the Company issued and placed into escrow 600,000 shares
of restricted common stock to A-Z Professional Consultants, Inc. (a Utah
corporation) in reliance on Regulation D Rule 504 to be issued for the
performance of financial consulting services and valued at $.05 per share. A
total of 300,000 of these shares have been delivered with the balance upon
completion of the consulting services.
<PAGE>
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. Section 145 of the
Delaware Code as amended 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."
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.
PART F/S
- --------
The Independent Auditor's Report and the Financial Statements for the year
ending December 31, 1998 are included in addition to the Financial Statements
for the three quarters ending September 30, 1999.
HIGHLAND HOLDINGS INTERNATIONAL, INC
FINANCIAL STATEMENTS
December 31, 1998
(with accountants report thereon)
<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 exloration stage company) as of December 31,
1998 and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1997 and 1998. These
consolidated financial statements are the responsibility of the company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Highland
Holdings International, Inc. ( an exploration stage company) as of December 31,
1998 and the related consolidated statements of operations, cash flows and
shareholders' equity for the years ending December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Highland Holdings International, Inc. ( 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
October 15, 1999
Paterson, New Jersey
F-1
<PAGE>
<TABLE>
<CAPTION>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED BALANCE SHEET
September 30,
December 31, 1999
1998 Unaudited
----------- ------------
Assets
<S> <C> <C>
Current assets
Cash $ 20,198 $ 900
Prepaid expenses $ 6,039
----------- -----------
Total current assets 26,237 900
Property and equipment-net 4,614 2,837
Total assets $ 30,751 $ 3,737
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 3,387 $ 16,155
Convertible promissory note 22,365
----------- -----------
Total liabilities 25,752 16,155
Stockholders equity
Preferred stock- $.001 par value , authorized
5,000,000 shares. The number of shares
outstanding at December 31, 1998 and
September 30, 1999 was -0- and -0- respectively
Capital stock-$.001 par value, authorized 20,000,000
shares. The number of shares outstanding at
December 31, 1998 and September 30, 1999 was
6,603,944 and 6,603,944 repectively 5,685 14,241
Additional paid in capital 1,565,112 1,730,602
Accumulated other comprehensive income:
Currency translation 7,681 (7,681)
Accumlated deficit during development stage (1,573,379) (1,749,580)
----------- -----------
Total stockholders equity 5,099 (12,418)
----------- -----------
Total liabilities and stockholders equity $ 30,751 $ 3,737
=========== ===========
See accompanying notes to financial statements.
F-2
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period
from inception,
For nine months For the nine March 23, 1992,
For the year For the year months ended months ended to
ended ended September 30, September 30, September 30,
December 31, December 31, 1998 1999 1999
1997 1998 Unaudited Unaudited Unaudited
----------- ----------- --------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net profit (loss) $ (921,658) $ 183,326 $ (350,192) $ (176,201) $(1,749,580)
Depreciation and amortization 1,386 1,370 900 1,777 4,533
Issuance of common stock 66,100 62,500 30,000 658,843
for compensation
Prepaid expenses (4,692) (1,347) (1,347) 6,039
51500
Accounts payable 22,700 (19,313) 12,350 12,768 16,155
----------- ----------- ----------- ----------- -----------
TOTAL CASH FLOWS FROM OPERATIONS (836,164) 226,536 (338,289) (125,617) (1,070,049)
CASH FLOWS FROM FINANCING
ACTIVITIES
Note payable 238,000 (603,000)
Proceeds of convertible note 22,365
Gain on Foreign exchange 7,681 4,095 (7,681) (7,681)
Sale of stock-net of offering 630,000 342,000 321,065 114,000 1,086,000
----------- ----------- ----------- ----------- -----------
costs
TOTAL CASH FLOWS FROM FINANCING 868,000 (230,954) 325,160 106,319 1,078,319
ACTIVITIES
CASH FLOWS FROM INVESTING
ACTIVITIES
Security deposit (2,803) 2,853 2,853
Office equipment (13,414) 6,584 (1,636) (7,370)
----------- ----------- ----------- ----------- -----------
TOTAL CASH FLOWS FROM INVESTING (16,217) 9,437 1,217 (7,370)
ACTIVITIES
NET INCREASE (DECREASE) IN CASH 15,619 5,019 (11,912) (19,298) 900
CASH BALANCE BEGINNING OF PERIOD 100 15,719 15,719 20,198 -0-
----------- ----------- ----------- ----------- -----------
CASH BALANCE END OF PERIOD $ 15,719 $ 20,198 $ 3,807 $ 900 $ 900
=========== =========== =========== =========== ===========
See accompanying notes to financial statement.
F-3
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Additional Deficit
Common Common paid in accumulated during
Date Stock Stock capital development stage Total
---- ----------- ----------- ----------- ----------- -----------
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
Net loss (30,050) (30,050)
----------- ----------- ----------- ----------- -----------
12-31-1995 42,535 42 322,155 (31,850) 290,347
Issuance of shares for forgiveness of 10,057 10 147,366 147,376
loans
Issuance of shares for acquisition 2,971 3 621 624
Net loss (803,197) (803,197)
----------- ----------- ----------- ----------- -----------
12-31-1996 55,563 55 470,142 (835,047) (364,850)
Issuance of shares for acquisition 285,714 286 19,714 20,000
Issuance of shares for consulting services 187,143 187 12,913 13,100
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 31,464 31,500
Issuance of shares to Advisory Board 4,286 4 1,496 1,500
Sale of shares 75,000 75 524,925 525,000
Net loss (921,658) (921,658)
----------- ----------- ----------- ----------- -----------
12-31-1997 943,420 943 1,165,354 1,756,705 590,408
Issuance in consideration for consulting 40,000 40 28,460 28,500
fees
Issuance of shares for conversion of debt 66,819 67 47,933 48,000
Sale of shares through private placement 604,761 605 155,395 156,000
Issuance of shares for conversion of debt 533,131 533 47,467 48,000
Issuance of shares in consideration for 340,000 340 33,660 34,000
consulting fees
Sale of shares through private placement 3,156,767 3,157 86,843 90,000
Foreign currency translation 7,681
Net profit 183,326 183,326
----------- ----------- ----------- ----------- -----------
12-31-1998 5,684,898 $ 5,685 $ 1,572,793 (1,573,379) 5,099
Unaudited
Gain on foreign exchange (7,681)
Sale of shares through private placement 7,600,000 7,600 106,400 114,000
Issuance of shares for conversion of debt 355,555 356 22,009 22,365
Issuance of shares for consulting fees 600,000 600 29,400 30,000
Net loss (176,201) (176,201)
----------- ----------- ----------- ----------- -----------
09-30-1999 14,240,453 $ 14,241 $ 1,722,921 $(1,749,580) (12,418)
=========== =========== =========== =========== ===========
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.
F-4
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period
from inception,
For the nine For the nine March 23, 1992
For the year For the year months ended months ended to
ended ended September 30, September 30, September 30,
December 31, December 31, 1998 1999 1999
1997 1998 Unaudited Unaudited Unaudited
----------- ----------- ----------- ----------- -----------
Income $ -0- $ -0- $ -0- $ -0- $ -0-
Cost of goods sold -0- -0- -0- -0- -0-
----------- ----------- ----------- ----------- -----------
Gross profit -0- -0- -0- -0- -0-
Operations:
General and 324,672 323,168 299,416 45,610 1,029,154
administration
Exploration 581,000 32,635 19,876 89,814 1,055,417
Non cash 14,600 62,500 30,000 30,000 254,476
compensation-consulting
fees
Depreciation and
amortization 1,386 1,370 900 1,777 4,533
----------- ----------- ----------- ----------- -----------
Total expense 921,658 419,674 350,192 167,201 2,343,580
Loss from continuing (921,658) (419,674) (350,192) (167,201) (2,343,580)
operations
Other income and loss
Interest expense (9,000) (9,000)
Write off of debt
due to Brazilian parties 603,000 603,000
----------- -----------
Total other income and 603,000 (9,000) 594,000
expenses
Net Profit (Loss) from
operations $ (921,658) $ 183,326 $ (350,192) $ (176,201) $(1,749,580)
=========== =========== =========== =========== ===========
Net loss per
share-basic $ (0.24) $ 0.09 $ (.15) $ (0.02) $ (0.18)
=========== =========== =========== =========== ===========
Weighted average
number of shares
outstanding 3,912,693 2,134,123 2,300,055 9,962,675 9,962,675
=========== =========== =========== =========== ===========
See accompanying notes to financial statements.
F-5
</TABLE>
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Note 1. Organization of Company and Issuance of Common Stock
----------------------------------------------------
a. Creation of the Company
Highland Holdings International, Inc. (the "Company") was formed on March
23, 1992 under the laws of the State of Delaware as Northern Medical, Inc. with
10,000,000 shares of common stock authorized, $.001 par value each and 1,000,000
shares of preferred stock, $.001 par value each. On October 30, 1992, the
certificate of incorporation was amended to change the name of the Company to
Normed Industries, Inc. The certificate of incorporation was again amended on
January 17, 1995 increasing the number of shares of common stock to 20,000,000,
$.001 par value each and 5,000,000 shares of preferred stock, $.001 par value
each. On January 24, 1995, the Company forward split the number of shares of
common stock outstanding in a ratio of 17,500 to 1 restating the number of
shares of common stock outstanding to 1,750,000. On March 28, 1995, the Company
amended its certificate of incorporation to change its name to Highland
Resources, Inc. On November 3, 1997, the Company amended its certificate of
incorporation to change its name to Highland Holdings International, Inc.
b. Description of the Company
The Company is 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.
F-6
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 $624 or $0.21 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 $20,000 or $.07 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 $13,100 in services or $.07 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 at
$.05 per share, pursuant to a private placement under "Rule 504" of the
Securities Act of 1933, as amended, for an aggregate consideration of $90,000 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 380,000 shares of
common stock for an aggregate consideration of $62,500 in consulting fees or an
average of $.16 per share
During 1998, the Company sold 599,950 shares of common stock through the
initial sale of $96,000 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 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 3,156,767 shares for an aggregate
consideration of $90,000 through the completion of a private placement at $.03
per share.
F-7
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
As of September 30, 1999, the Company sold 300,000 shares of common stock
for $10,000 or $0.067 per share to Mr. George Nadas, Secretary.
As of September 30, 1999, the Company sold 7,300,000 shares of common stock
for $104,000 or $0.014 per share to Mr. John Demoleas, President.
As of September 30, 1999, the Company sold 355,555 shares of common stock
for $22,365 or $0.06 per share.
As of September 30, 1999, the Company 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.
Note 2 - Summary of Significant Accounting Policies
------------------------------------------
a. Basis of Financial Statement Presentation
The accompanying unaudited financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $1,298,608 for the period from inception, March 23, 1992,
to September 30, 1999. These factors indicate that the Company's continuation as
a going concern is dependent upon its ability to obtain adequate financing. The
Company is anticipating the need to do further private placements to bring the
mine in Honduras into production and with the completion of its additional
private placement and with the increase in working capital, the Company will be
able to continue to develop the Company's mining concession and begin
production. The Company will require substantial additional funds to finance its
business activities on an ongoing basis and will have a continuing long-term
need to obtain additional financing. The recoverability of the amounts shown for
the mining projects and the ability of the Company to continue as a going
concern are dependent upon its ability to raise capital, achieve profitable
operations from its mining activities, and on a satisfactory regulatory
environment governing the development and operation of mining properties in
Honduras.
The financial statements presented consist of the consolidated balance
sheet of the Company as at December 31, 1998 and the unaudited balance sheet as
at September 30, 1999 and the related consolidated statements of operations,
stockholders equity and cash flows for the years ending December 31, 1997 and
1998 and the related unaudited consolidated statements of operations,
stockholders equity and cash flows for the nine months ended September 30, 1998
and 1999 and for the period from inception, March 23, 1992, to September 30,
1999.
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
F-8
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
c. Capitalization of Mineral Claim 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 of July 01, 1997, the three years
cumulative rate of inflation in Brazil, Honduras and Canada was less than 100%
and the entity's functional currency became the Brazilian real, Honduars lempira
and the Canadian dollar, the currency of the primary economic environment in
which the Company operates. As the reporting currency is the U.S. dollar, the
following criteria for the translation of Brazilian reais, Honduras lempira and
Canadian dollars to U.S. dollars was applied to the local currency basis
financial statements according to SFAS 52.
Assets and liabilities were translated by using the exchange rate at the balance
sheet date;
Revenues, expenses, gains, losses were translated by using the weighted
average exchange rate for the period from January 1, September 30, 1999.
The translation loss for the period from January 1, September 30, 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.
F-9
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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.
<TABLE>
<CAPTION>
Nine months Nine Months
Year ended Year ended ended ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Total number common
shares outstanding 3,912,693 2,134,123 2,300,055 9,962,675
</TABLE>
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 from the Lagoa da
Pedra Partnership for 34,202 shares of common stock. The transaction has been
F-10
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
accounted for as a transfer 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 spoent 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 Lagoa da Pedra Partnership consists of Jose Lourenco Viana Neto
and Charles Stetler, geologist residing the city of BH/MG, Brazil and Enterprise
Gold, a partnership located in Monaco. The terms of the agreement were modified
on various occassions 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 $500,000. On September 11, 1997, the agreement was modified as
to the terms and conditions as follows:
The Company paid $15,000 pursuant to the original agreement on July 26,
1996.
On September 11, 1996, the Company issued 624,000 shares of common stock as
part consideration in the acquisition of Minas Novas and to extend the deadline
for 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 $0.001 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
$0.125 per share in consideration for the risk of the holding period,
representing one half of the market price on that date.
F-11
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The shareholders' of Minas Novas have an option until September 30, 1998,
to require the Company to repurchase these shares at $2.00 per share for an
aggregate consideration of $500,000 by notifying the company of Minas Nova's
intention in writing by September 1, 1998 and must effect payment within 120
days. Thirty days after written notice, interest will accrue at the rate of 2%
per month.
The Company also agreed begin to advance money as follows:
$5,000 per month for the next 12 months for payment of administration
costs.
$20,000 toward the costs of the elaboration of the Economic Development
Plan as required by the Brazilian government.
$80,000 for working capital.
The default of any of the obligations of either the Company or Minas Novas
that is not corrected in a maximum period of 30 days, counting the date of the
specific notification will cause the dissolution of the contract and subject the
Company to a penalty of $210,000 and the return to each party the shares issued
pursuant to this contract.
As of December 31, 1997, the Company has recorded the obligation to
repurchase the 250,000 shares of common stock at $2.00 each for an aggregate of
$500,000.
As of December 31, 1997 and 1998, the Company had paid an aggregate of
$19,000 and $-0- towards the contracted agreement..
As of December 31, 1998, the Company has concluded that the Minas Novas
Project is not able to yield production sufficient to offset the required
investment in exploration and commercial production costs and has charged the
mineral costs of $176,500 accumulated for this project and has charged
operations for the year ending December 31, 1998. Management is also of the
opinion that Minas Novas Pesquisa E Lavra S.A. has not lived up to the terms and
conditions of the contract for purchase, exploration and development. entered
into on September 11, 1997 and has discontinued any further relationship with
the shareholders of Minas Novas. The Company has also placed a stop transfer
order on the 250,000 shares of common stock that were issued as a further
inducement and as additional consideration and collateral for the consummation
of this purchase agreement and has requested the return of these shares.
Management is also of the opinion that it is not liable for default of monies
due under the terms of this agreement and has written off additional liabilities
aggregating $603,000. Pursuant to the terms and conditions of the agreement, the
Company may be liable for liquidated damages of up to $210,000 if litigation
should occur.
As of September 30, 1999, a lawsuit has not been entered into by either
party and in the opinion of management a lawsuite by Minas Novas is not expected
considering that they have regained all rights to the property and the benefits
of the Company's investment in property improvements and equipement purchased.
F-12
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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.
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%.
F-13
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Note 4 - Related Party transactions
--------------------------
a. Issuance of Common Stock
On March 31, 1992 the Company issued 100 common shares to Mr. Roger Fidler
in consideration for $1,500 in cash and the contribution of $500 in organization
costs.
On March 13, 1995 when the Company entered into an agreement to purchase
the alluvial mineral rights in the Lagoa da Pedra Project from the Lagoa da
Pedra Partnership for 7,182,315 of the Company's common shares.
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 1,310,000 shares of common stock to various related parties to the Company in
consideration for services of $13,100 in services valued at $.01 per share.
On December 16, 1997, the Company issued ,pursuant to regulation D, 30,000
shares of common stock to 6 advisory board members in exchange for services over
a period of 1 year valued at $1,500 or $.05 per share.
On February 4, 1998, the Company issued 7,143 post split shares of common
stock to John Demoleas, President, in consideration of consulting fees valued at
$5,000 or $0.10 per share.
On July 10, 1998, the Company sold 190,476 post split shares of common
stock to John Demoleas, President, in consideration for $40,000 or $0.21 per
share.
On September 9, 1999, the Company issued 726,666 shares of common stock to
John Demoleas in consideration for services valued at $14,533 or $0.02 per
share.
As of April, 1999, the Company sold 7,300,000 shares of common stock to
John Demoleas for an aggregate consideration of $104,000 or $0.014 per share.
As of September 30, 1999, the Company sold 300,000 shares of common stock
for $10,000 or $0.03 per share to Mr. George Nadas, Secretary.
b. Officer Compensation
For the year ended December 31, 1998 and for the nine months ended
September 30, 1999, the Company has not paid any salary to any of the officers.
Note 5 - Preferred Stock
---------------
The certificate of Incorporation was amended on January 17, 1995 increasing
the number of shares authorized from 200 common shares with a par value of $.001
to an aggregate number of shares of stock which the corporation shall have
authority to issue is 25,000,000, which are divided into 5,000,000 shares of
Preferred stock with a par value of $.001. The Preferred Shares have the
following provisions:
F-14
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
a. Dividends are cumulative.
Preferred shareholders are entitled to receive dividends at the rate of
$.12 per share per annum and no more, payable in cash quarterly commencing March
31, 1995 and thereafter on the last day of September, December, March and June
of each year on any Preferred series A shares ("Preferred Stock") outstanding.
Dividends that are in arrears must be paid before any distribution shall be paid
on common stock.
b. Redemption
At any time during the six year period commencing on the date of issuance,
the Company may redeem all or part of the outstanding shares of the Preferred
Stock at the redemption cash price equal to $2.50 per share, together with all
declared and unpaid dividends provided the Company gives thirty days prior to
the date specified for redemption..
c. Voting Rights
Except as otherwise required by law or by the articles of incorporation of
the Company, the shares of Preferred Stock shall have no voting rights
whatsoever.
d. Conversion Rights
Each share of Preferred Stock shall be convertible at the option of the
holder, at any time during the time period commencing 5 years from the date of
issuance and ending 6 years from the date of issuance, and on or prior to the
5th day prior to a redemption date into fully paid and nonassessable shares of
common stock of the Company. The number of shares of common stock into which
each share of the Preferred Stock may be converted shall be determined by
dividing the initially issuable conversion price of $2.50 subject to adjustment
by the conversion price in effect at the time of the conversion. The conversion
price from time to time in effect shall be subject to adjustment as follows: In
case the Company shall at any time subdivide the outstanding shares of common
stock, or shall issue a stock dividend on its outstanding common stock, the
conversion price in effect immediately prior to such subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Company
shall at any time combine the outstanding shares of common stock, the conversion
price in effect immediately prior to such combination shall be proportionately
increased, effective at the close of business on the date of such subdivision,
dividend or combination, as the case may be.
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.
F-15
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
At December 31, 1998 and September 30, 1999, the number of shares of
preferred stock outstanding was -0-.
Note 6 - Capital Assets
---------------
Capital Assets consisted of the following at:
December 31, September 30,
1998 1999
-------- ---------
Office equipment $ 7,191 $ 7,191
Accumulated depreciation 2,577 4,354
-------- ---------
Balance $ 4,614 $ 2,837
Note 7 - Income Taxes
------------
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of September 30, 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 September 30, 1999, the Company has net operating loss carry forwards
for income tax purposes of $1,358,266. This carry forward is available to offset
future taxable income, if any, and expires in the year 2010. The Company's
utilization of this carry forward against future taxable income may become
subject to an annual limitation due to a cumulative change in ownership of the
Company of more than 50 percent.
The components of the net deferred tax asset as of September 30, 1999 are
as follows:
Deferred tax asset:
Net operating loss carry forward $ 461,810
Valuation allowance (461,810)
----------
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, 1998 and for the nine
months ended September 30, 1999.
F-16
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 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 ( 624)
Issuance of 285,714 common shares as
consideration for acquisition of Arizona
properties (20,000)
Issuance of 187,143 common shares in
consideration for consulting fees (13,100)
Issuance of 35,714 common shares as part
consideration for the Minas Novas acquisition ( 31,500)
Issuance of 4,286 common shares to 6 advisory
board members in exchange for services ( 1,500)
Capital Stock 511,293
---------
Total $ -0-
=========
F-17
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 $(62,500)
Issuance of 599,950 common shares in consideration
of the conversion of debt (96,000)
Capital Stock 158,500
--------
Total $ -0-
The following is supplemental cash flow information for the nine months
ended September 30, 1999:
Issuance of 355,555 common shares in consideration
for the conversion of debt $(22,365)
Issuance of 600,000 shares in consideration consulting
fees (30,000)
Capital Stock 32,365
--------
Total $ -0-
Note 9 - Commitments and Contingencies
-----------------------------
a. Stock Option Plan and Stock Grant Program
In June 1995, the Company adopted a non-qualified stock option plan and a
stock grant program with the following provisions:
1. Stock Option Plan: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers and consultants.
Under this plan, no employee may receive more than 50,000 options. Options are
nontransferable and expire if not exercised within two years. The options may
not be exercised by the employee until after the completion of two years of
employment with the Company. The options are issuable to officers, key employees
and consultants in such amounts and prices as determined by the Board of
Directors. As of December 31, 1997, no options have been granted pursuant to
this plan.
2. Stock Grant Program: The Company has reserved 300,000 shares of its
authorized common stock for issuance to key employees, officers, directors, and
consultants. Under this plan, no employee may receive more than 100,000 options.
The program requires the employee to remain in the employ of the company for at
F-18
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 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 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.
F-19
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 the following
Convertible Promissory Note, (the "Note") dated March 26, 1998 and due September
22, 1998. The Note is payable pursuant to the following terms and conditions:
Interest is payable at the rate of 12% in advance upon the closing of the
issuance of this Note. Interest will be payable in advance in the form of the
Company's shares of common stock. The number of shares of common stock will be
computed as the interest amount on this Note through the full term of the Note
divided by 75% of the lowest bid price of the shares of common stock quoted on
the over the counter Bulletin Board market for the 5 day trading period.
The holder of this Note has the right to convert this note, in whole or in
part at any time into shares of common stock, at the lesser of 75% of the lowest
closing 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.
F-20
<PAGE>
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(an exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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.
The proceeds to the Company was $125,000 less commission of $15,635 with
net proceeds of $109,365.
As of December 31, 1998 and September 30, 1999, the Company is obligated to
repay $22,365 and $-0- respectively.
As of December 31, 1998, the Company had converted $96,000 in debt into an
aggregate of 599,950 shares of common stock for an aggregate of $96,000 for an
average conversion price of $.16 per share.
As of September 30, 1999, the Company issued 355,555 shares of common stock
in consideration for the conversion of $22,365 in debt $.06 per share.
The Company has issued an aggregate of 955,505 shares of common stock for
an aggregate value of $134,000 which includes $9,000 in interest.
F-21
<PAGE>
PART III
ITEM 1 Index to Exhibits
- ------ -----------------
Exhibit 1 * State of Delaware - Articles of Incorporation
Exhibit 2 * State of Delaware - Amendment to Articles of Incorporation
11/02/92
Exhibit 3 * State of Delaware - Amendment to Articles of Incorporation
01/18/95
Exhibit 4 * State of Delaware- Amendment to Articles of Incorporation
03/28/95
Exhibit 5 * State of Delaware - Amendment to Articles of Incorporation
12/03/97
Exhibit 6 * Amended By Laws - Highland International Holdings, Inc.
Exhibit 7 * Specimen Share Certificate
* Previously filed
Highland Holdings International, Inc.
Registrant
Date: February 24, 2000 By: /s/ John Demoleas, President
-----------------------------------
Signature
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the nine month period ended September 30, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 900
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 900
<PP&E> 7,730
<DEPRECIATION> 4,533
<TOTAL-ASSETS> 3,737
<CURRENT-LIABILITIES> 16,155
<BONDS> 0
0
0
<COMMON> 14,241
<OTHER-SE> (26,659)
<TOTAL-LIABILITY-AND-EQUITY> 3,737
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (176,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (176,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,201)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
