bowmo, Inc. - Quarter Report: 2011 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

[x]  Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended September 30, 2011

-OR-

 [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from _______ to ________

Commission File Number       333-139685

US HIGHLAND, INC.

(Exact name of registrant as specified in its charter)

OKLAHOMA		73-1556790
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1241 South Harvard, Tulsa, OK           74112

(Address of principal executive offices)     (Zip Code)

918-827-5254

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [ ]   No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act.

Large accelerated filer   [ ]		Non-accelerated filed            [ ]
Accelerated filer            [ ]		Smaller reporting company  [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [ ] No [x]

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of November 21, 2011: 22,513,178 shares.

2

US Highland, Inc.

FORM 10-Q

For the quarterly period ended September 30, 2011

INDEX

PART I – FINANCIAL INFORMATION

		Page
Item 1.  Financial Statements (Unaudited)		4
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.  Quantitative and Qualitative Disclosure about Market Risk		17
Item 4.  Controls and Procedures		18

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings		19
Item 1A.  Risk Factors		19
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3.  Defaults upon Senior Securities		19
Item 4.  Removed and Reserved		19
Item 5.  Other Information		19
Item 6.  Exhibits		19
SIGNATURES		20

3

US Highland Inc.

Balance Sheet

September 30, 2011 and 2010

		2011		2010
		(Unaudited)		(Unaudited)
Assets
Current Assets:
Cash		$ 295,260		$                -
Accounts Receivable		169,896		171,324
Inventory		1,032,414		3,881,522
Prepaid Expense		-		42,000
Total Current Assets		1,497,570		4,094,846
Property and Equipment:
Vehicle				57,420
Furniture and Fixtures		48,354		42,923
Tooling		353,065		352,976
Production Equipment		4,806		4,806
Leasehold Equipment		204,255		204,143
Accumulated Depreciation		(59,506)		(9,044)
Total Fixed Assets		550,974		653,224
Other Assets:
Long-Term Notes Receivable		-		250,030
Goodwill		143,820		164,820
Deposits		1,339		2,005
Total Other Assets		145,159		416,855
Total Assets		$2,193,703 ========		$5,164,925 ========

4

US Highland Inc.

Balance Sheet (Continued)

September 30, 2011 and 2010

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable		379,279		483,067
Cruent Portion of Long-Term Debt		-		8,870
Escrow Account		25,000		25,000
Unearned Revenue		20,000		-
Payroll Taxes		16,831		-
Accrued Liabilities		-		121,663
Total Current Liabilities		441,110		638,600
Long-Term Liabilities:
Notes Payable		10,000		25,090
Long-Term Debt		-		19,915
Total Long-Term Debt		10,000		45,005
Deferred Income Taxes		8,386		8,386
Total Liabilities		459,496		691,991
Stockholders' Equity:
Common Stock, 100 Million Shares     authorized, par $0.01.  22,513,178 issued     2011, 20,519,926 issued 2010		225,132		214,496
Paid in Capital		6,379,542		5,182,960
Retained Earnings		(3,986,467)		(48,763)
Treasury Stock		(884,000)		(884,000)
Total Stockholders' Equity		1,734,207		4,464,693
Total Liabilities and Stockholders' Equity		$2,193,703 ========		$5,156,684 ========

The accompanying notes are an integral part of these financial statements

5

US Highlands Inc.

Statement of Operations and Retained Earnings

For the Periods Ended September 30, 2011 and 2010

6

US Highlands Inc.

Statement of Operations and Retained Earnings

For the Periods Ended September 30, 2011 and 2010

(Continued)

The accompanying notes are an integral part of these financial statements

7

US Highland Inc

Statement of Cash Flows

For the Periods Ended September 30, 2011 and 2010

		9/30/11		9/30/10
		(Unaudited)		(Unaudited)
Cash Flows From Operating Activities
Net Income (Loss)		$(193,477)		$(455,952)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (used in) Operating Activities:
Depreciation		15,675		3,876
(Increase) decrease in accounts receivable		-		(136,263)
(Increase) decrease in inventories		-		(340,180)
(Increase) decrease in prepaid assets		-		(27,925)
Increase (decrease) in accounts payable		(167,226)		479,510
Increase (decrease) in current portion L T Debt		-		-
Increase (decrease) in accrued expenses		-		-
Net Cash Provided by (used in) Operating Activities		(345,028)		(476,934)
Cash Flows from Investing Activities
Property and Equipment (Purchases) Dispositions		(2,051)		(12,845)
Accumulated Depreciation/Amortization		-		8,241
(Increase) decrease in Deposits		-		-
Increase (decrease) Net Purchase Investments		-		-
(Increase) decrease in L. T. Receivables		-		-
Net Cash Provided by (used in) Investing Activities		(2,051)		(4,604)

8

US Highland Inc.

Statement of Cash Flows

For the Periods Ended September 30, 2011 and 2010

(continued)

Cash Flows from Financing Activities
Issuance of Common Stock		-		750
Proceeds from long-term debt		-		-
Repayment of related party debt		-		25,090
Repayment of long-term debt		-		(1,792)
Additional paid-in capital		641,990		389,423
Treasury Stock (Purchase) Sale		-		-
Net cash provided by (used in) financing activities		641,990		413,471
Net increase in (decrease) in cash and cash equivalents		294,911		(68,067)
Cash and cash equivalents: beginning of period		348		68,067
Cash and cash equivalents: end of period		$295,911		$             -
		=======		=======
Supplemental Disclosures:
Non-cash investing and financing activities interest paid		29 =======		2,369 =======

The accompanying notes are an integral part of the interim financial statements

9

US Highland, Inc.

Notes to Financial Statements

For The Three and Nine Months Ended September 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Organization and Nature of Operations

US Highland, Inc. was originally formed as a Limited Liability Company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma.  On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name Harcom Productions, Inc.  On January 25, 2010, Articles of Merger were filed with the state of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc.  US Highland, Inc. is a recreational powersports OEM, developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.

Cash and Cash Equivalents

The Company considers highly liquid investments (those readily convertible to cash) purchased with original maturity dates of three months or less to be cash equivalents.

Income Taxes

In 2007 The Company had completed its conversion to a C-Corporation under the laws of the state of Oklahoma. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Income taxes are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) topic 740 – Income Taxes.  Pursuant to the guidance in ASC 740, income taxes are recognized for the following: i) amount of taxes payable for the current year, and ii) deferred tax assets and liabilities for the future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using statutory tax rates and are adjusted for tax rate changes. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Allowance for Doubtful Accounts

It is the Company's policy to provide an allowance for doubtful accounts when it believes there is a potential for non-collectability. At present US Highland, Inc. management does not feel that there are any doubtful accounts.

10

US Highland, Inc.

Notes to Financial Statements

For The Three and Nine Months Ended September 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies (continued)

Revenue Recognition

Costs of Goods Sold costs include all direct equipment, amortization, material, shipping costs and those indirect costs related to contract performance, such as indirect labor. Selling, general and administrative costs are charged to expenses as incurred. Changes in contract performance, contract conditions, and estimated profitability that may result in revisions to costs and income are recognized in the period in which the revisions are determined.

For revenue from product sales, the Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which superseded SAB No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. SAB No. 104 incorporates Emerging Issues Task Force ("EITF") No. 00-21, "Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing EITF No. 00-21 on the Company's financial position and results of operations was not significant. This issue addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting. EITF No. 00-21 became effective for revenue arrangements entered into in periods beginning after September 15, 2003.

For those contracts which contain multiple deliverables, management must first determine whether each service, or deliverable, meets the separation criteria of EITF No. 00-21. In general, a deliverable (or a group of deliverables) meets the separation criteria if the deliverable has standalone value to the customer and if there is objective and reliable evidence of the fair value of the remaining deliverables in the arrangement.

11

US Highland, Inc.

Notes to Financial Statements

For The Three and Nine Months Ended September 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies (continued)

Each deliverable that meets the separation criteria is considered a "separate unit of accounting." Management allocates the total arrangement consideration to each separate unit of accounting based on the relative fair value of each separate unit of accounting. The amount of arrangement consideration that is allocated to a unit of accounting that has already been delivered is limited to the amount that is not contingent upon the delivery of another separate unit of accounting. After the arrangement consideration has been allocated to each separate unit of accounting, management applies the appropriate revenue recognition method for each separate unit of accounting as described previously based on the nature of the arrangement. All deliverables that do not meet the separation criteria of EITF No. 00-21 are combined into one unit of accounting, and the appropriate revenue recognition method is applied.

Basis of Presentation

In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows, and stockholders' equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.  Actual results and outcomes may differ significantly from management's estimates and assumptions.

Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with generally accepted principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

12

US Highland, Inc.

Notes to Financial Statements

For The Three and Nine Months Ended September 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies (continued)

Long-Lived Assets

Equipment is stated at cost and depreciated over a useful life of 7 years. Expenditures for maintenance and repairs are charged to operating expenses as incurred. When equipment is retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in results of operations.

 

Management assesses the recoverability of equipment and intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from its future undiscounted cash flows.  If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value.

New Accounting Standards

Recent Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income”. ASU 2011-05 amends the guidance in ASC 220 “Comprehensive Income” by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now requires entities to present all non owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. The Company does not have other comprehensive income and therefore does not expect the adoption of ASU 2011-05 to have a material effect on our financial statements.

13

US Highland, Inc.

Notes to Financial Statements

For The Three and Nine Months Ended September 30, 2011

(Unaudited)

Note 1 – Summary of Significant Accounting Policies (continued)

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement”. This guidance amends the application of the “highest and best use” concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. The fair value disclosure requirements also were amended. The Company is in the process of evaluating the impact the amended guidance will have on its financial statements.

Note 2 - Long-term Debt

The Company does not have any long-term debt.

Note 3 - Other Commitments and Contingencies

Lease Agreement

Manufacturing operations are not expected to commence until the 1^st quarter of 2012.  The Company has no lease obligation at this time.

Note 4 – Subsequent Event

The Company has delayed its USA based manufacturing until appropriate working capital has been procured to insure the successful launch of the manufacturing operations.  Ongoing negotiations for the required capital are underway with an expected completion in the fourth quarter of 2011.

14

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General Overview

The following Management’s Discussion and Analysis is intended to help the reader understand our company.  It is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.

Forward-Looking Statements

Historical results and trends should not be taken as an indication of future operations. Management’s statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “should,” “could,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “prospects,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company include, but are not limited to: changes in economic conditions, legislative/regulatory changes, the availability of capital, interest rates, and the competitive environment. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business; including additional factors that could materially affect the Company’s financial results, are included herein and in the Company’s other filings with the Securities and Exchange Commission.

The following discussion and analysis should be read in conjunction with the financial statements and notes to financial statements included elsewhere in this quarterly report on Form 10-Q. This report and the financial statements and notes to financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to future economic performance and our current beliefs regarding revenues we might earn if we are successful in implementing our business strategies. The Company does not undertake to update, revise or correct any forward-looking statements.

Liquidity and Capital Resources

Our principal sources of liquidity are existing cash and our ability to borrow cash or obtain equity investment when needed from a number of related parties.

15

Our principal uses of liquidity are paying the limited expenses incurred during management reorganization and launching of manufacturing.

Results of Operations For the Three Months Ended September 30, 2011 and 2010

Net Loss:

Net loss for the three months ended September 30, 2011 was $(193,477), which is lower than expected for the period.  

Comparatively, net loss for the three months ended September 30, 2010 was $(447,711).  The Company expects to begin generate consistent revenues in second quarter 2012 after production startup.

Operating Expenses:

Operating expenses for the three months ended September 30, 2011 totaled $188,804.  Operating expenses are anticipated to be minimal until first quarter 2012 when full manufacturing ramp-up is anticipated to begin

Operating expenses for the three months ended September 30, 2010 totaled $505,680.  Operating expenses are anticipated to be minimal until first quarter 2012 when full manufacturing ramp-up is anticipated to begin.

Revenues:

During the three months ended September 30, 2011, the Company had no revenues.

During the three months ended September 30, 2010, the Company had revenues of $151,650.

Manufacturing of powerplants is planned for early 2012. This activity is expected to be a significant source of revenue. In addition to revenues generated from manufacturing of powerplants; manufacturing and sales of the Company’s motorcycles, quads, and other products, is planned for formal production startup in late 2012 after the powerplant production ramp up is complete.

  

Cost of Goods Sold:

Cost of goods sold for the three months ended September 30, 2011 was $9,616.  Comparatively, for the three months ended September 30, 2010, cost of goods sold was $345,810.  As the Company completes its production ramp activities and commences selling its manufactured products as anticipated in 2012, cost of goods sold are projected to increase substantially, primarily proportionately to revenues from manufacturing operations.

16

Results of Operations For the Nine Months Ended June 30, 2011 and 2010

Net Loss:

Net loss for the nine months ended September 30, 2011 was $(342,135), which is higher than expected for the period.  Comparatively, net income for the nine months ended September 30, 2010 was $(16,260).  The Company expects to begin to generate consistent revenues in second quarter 2012 after production startup.

Operating Expenses:

Operating expenses for the nine months ended September 30, 2011 totaled $333,358.  Operating expenses are anticipated to be minimal until first quarter 2012 when full manufacturing ramp-up is anticipated to begin

Operating expenses for the nine months ended September 30, 2010 totaled $1,077,255.  Operating expenses are anticipated to be minimal until first quarter 2012 when full manufacturing ramp-up is anticipated to begin

Revenues:

During the nine months ended September 30, 2011, the Company had no revenues.

During the nine months ended September 30, 2010, the Company had revenues of 1,062,470.

Manufacturing of powerplants is planned for early 2012.  This activity is expected to be a significant source of revenue. In addition to revenues generated from manufacturing of powerplants; manufacturing and sales of the Company’s motorcycles, quads, and other products, is planned for formal production startup in late 2012 after the powerplant production ramp up is complete.

  

Cost of Goods Sold:

Cost of goods sold for the nine months ended September 30, 2011 was $9,616.  Comparatively, for the nine months ended September 30, 2010, cost of goods sold was $345,810.  As the Company completes its production ramp activities and commences selling its manufactured products as anticipated in 2012, cost of goods sold are projected to increase substantially, primarily proportionately to revenues from manufacturing operations.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company

17

ITEM 4: CONTROLS AND PROCEDURES

During the three months ended September 30, 2011, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of June 30, 2011.  Based on this evaluation, our chief executive officer and chief principal financial officer have concluded such controls and procedures to be effective as of June 30, 2011 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

18

PART II

ITEM 1.  Legal Proceedings

         None

ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds

         None

ITEM 3.  Defaults Upon Senior Securities:

         None

ITEM 4  (Removed and Reserved)

ITEM 5  Other Information:

        None

ITEM 6.  Exhibits

        31    Certification of Chief Executive Officer and Chief

               Financial Officer pursuant to Section 302 of the

               Sarbanes-Oxley Act

        32    Certification of Chief Executive Officer and Chief

               Financial Officer pursuant to Section 906 of the

               Sarbanes-Oxley Act

101.INS**   XBRL Instance Document

101.SCH**   XBRL Taxonomy Extension Schema Document

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**   XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**   XBRL Taxonomy Extension Label Linkbase Document

101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document

*  Filed herewith

**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

19

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/John Fitzpatrick

-------------------------        

John Fitzpatrick

Chief Executive Officer

Chief Financial Officer

Dated: November 21, 2011

20