Document_And_Entity_Informatio
Document And Entity Information | 9 Months Ended | |
Sep. 30, 2014 | Jan. 14, 2015 | |
Document And Entity Information | ||
Entity Registrant Name | US Highland, Inc. | |
Entity Central Index Key | 1381871 | |
Document Type | 10-Q | |
Document Period End Date | 30-Sep-14 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -19 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 77,727,669 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2014 |
Unaudited_Condensed_Consolidat
Unaudited Condensed Consolidated Balance Sheets (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Current Assets | ||
Cash | $1,779 | $43,044 |
Inventory | 99,826 | |
Prepaid expenses | 43,873 | 58,520 |
Total Current Assets | 45,652 | 201,390 |
Long-term deposits | 11,478 | 11,491 |
Property and Equipment, net | 16,991 | 24,555 |
Total Assets | 74,121 | 237,436 |
Current Liabilities | ||
Accounts payable | 466,534 | 393,617 |
Accrued liabilities ($142,587 and $66,184 related parties, respectively) | 609,765 | 258,238 |
Convertible debentures ($89,549 and $144,362 related parties, respectively) | 311,606 | 351,829 |
Derivative liabilities | 40,286,681 | 29,430,719 |
Loans payable ($48,000 and $27,000 related parties, respectively) | 171,500 | 115,500 |
Total Current Liabilities | 41,846,086 | 30,549,903 |
Loans Payable ($525,000 and $0 related parties, respectively) | 525,000 | |
Total Liabilities | 42,371,086 | 30,549,903 |
Commitments | ||
Stockholders' Deficiency | ||
Preferred Stock, 3,550,000 shares authorized, par value $0.01; No shares issued and outstanding at September 30, 2014 and December 31, 2013 | ||
Common Stock, 500,000,000 shares authorized, $0.01 par value; 77,727,669 shares issued and outstanding at September 30, 2014 and December 31, 2013 | 777,276 | 777,276 |
Common Stock Reserved for Future Issuance | 145,886 | 129,881 |
Additional Paid-in Capital | 54,757,845 | 54,757,845 |
Accumulated Deficit | -97,204,472 | -85,203,969 |
Total Deficit | -41,523,465 | -29,538,967 |
Treasury Stock, at cost - 58,333 shares at September 30, 2014 and December 31, 2013 | -773,500 | -773,500 |
Total Stockholders' Deficiency | -42,296,965 | -30,312,467 |
Total Liabilities and Stockholders' Deficiency | $74,121 | $237,436 |
Unaudited_Condensed_Consolidat1
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Stockholders' Deficiency | ||
Accrued liabilities - related parties | $142,587 | $66,184 |
Convertible debentures - related parties | 89,549 | 144,362 |
Loans payable - related parties current (in Dollars) | 48,000 | 27,000 |
Loans payable - related parties (in Dollars) | $525,000 | $0 |
Preferred Stock, shares authorized | 3,550,000 | 3,550,000 |
Preferred Stock, par value (in Dollars per share) | $0.01 | $0.01 |
Preferred Stock, shares issued | 0 | 0 |
Preferred Stock, shares outstanding | 0 | 0 |
Common Stock, shares authorized | 500,000,000 | 500,000,000 |
Common Stock, par value (in Dollars per share) | $0.01 | $0.01 |
Common Stock, shares issued | 77,727,669 | 77,727,669 |
Common Stock, shares outstanding | 77,727,669 | 77,727,669 |
Treasury Stock - shares | 58,333 | 58,333 |
Unaudited_Condensed_Consolidat2
Unaudited Condensed Consolidated Statements of Operations (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Unaudited Condensed Consolidated Statements Of Operations | ||||
Revenue | ||||
Operating Expenses | ||||
Depreciation | 2,406 | 2,723 | 7,564 | 7,845 |
General and administrative | 101,946 | 157,749 | 636,900 | 454,114 |
Professional fees | 22,763 | 184,877 | 355,882 | 3,303,026 |
Write-down of inventory | 125,616 | |||
Total Operating Expenses | 127,115 | 345,349 | 1,125,962 | 3,764,985 |
Operating Loss | -127,115 | -345,349 | -1,125,962 | -3,764,985 |
Other Income (Expense) | ||||
Interest expense | -321,844 | -182,672 | -889,605 | -195,843 |
Change in fair value of derivatives | -1,991,170 | -12,083,506 | -10,800,605 | -12,536,990 |
Loss on settlement of debt | 814,668 | 814,668 | ||
Other income | 500 | 1 | 1,001 | 2,985 |
Total Other Income (Expense) | -1,497,846 | -12,266,177 | -10,874,541 | -12,729,848 |
Net (Loss) | ($1,624,961) | ($12,611,526) | ($12,000,503) | ($16,494,833) |
Net (Loss) Per Common Share: - Basic and Diluted | ($0.02) | ($0.16) | ($0.15) | ($0.22) |
Basic and diluted weighted average common shares outstanding | 77,727,669 | 77,194,000 | 77,727,669 | 75,100,600 |
Unaudited_Condensed_Consolidat3
Unaudited Condensed Consolidated Statements of Cash Flows (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Operating Activities | ||
Net (loss) | ($12,000,503) | ($16,494,833) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Depreciation | 7,564 | 7,845 |
Accretion expense | 777,196 | 171,250 |
Change in fair value of derivative | 10,800,605 | 12,536,990 |
Loss on settlement of debt | -814,668 | |
Warrants issued for consulting services | 2,599,801 | |
Write down of inventory | 125,616 | |
Shares issuable for interest expense | 16,005 | 6,398 |
Changes in operating assets and liabilities: | ||
Inventory | -25,790 | |
Prepaid expenses and deposits | 14,660 | -24,735 |
Accounts payable and accrued liabilities | 478,050 | 520,292 |
Net Cash Used in Operating Activities | -621,265 | -676,992 |
Investing Activities | ||
Investment in property and equipment | -4,355 | |
Net Cash Used in Investing Activities | -4,355 | |
Financing Activities | ||
Proceeds from issuance of notes payable | 608,300 | |
Proceeds from convertible debt | 385,000 | |
Proceeds from loan payable | 87,000 | |
Repayment of loans | -28,300 | -2,000 |
Proceeds from issuance of common stock | 228,500 | |
Net Cash Provided by Financing Activities | 580,000 | 698,500 |
Increase (Decrease) In Cash | -41,265 | 17,153 |
Cash - Beginning of Period | 43,044 | 10,498 |
Cash - End of Period | 1,779 | 27,651 |
Non-cash Investing and Financing Activities | ||
Warrants issued to settle debt | 53,606 | 229,942 |
Common stock issued to settle debt | $21,000 |
Unaudited_Condensed_Consolidat4
Unaudited Condensed Consolidated Statement of Stockholder's Equity (USD $) | Common Stock | Additional Paid-in Capital | Commom Stock Reserved For Future Issuance | Stock Subscription Receivable | Accumulated Deficit | Treasury Stock | Total |
Beginning Balance at Dec. 31, 2012 | $672,743 | $51,337,434 | $114,303 | ($1,000) | ($53,096,829) | ($773,500) | ($1,746,849) |
Beginning Balance, Shares at Dec. 31, 2012 | 67,757,669 | ||||||
Shares issued upon conversion of warrants | 50,000 | 3,202,278 | 3,252,278 | ||||
Shares issued upon conversion of warrants, Shares | 5,000,000 | ||||||
Subscriptions received | 1,000 | 1,000 | |||||
Cancellation of shares issued in error, Shares | -483,333 | ||||||
Shares issued to settle debt | 9,533 | 38,133 | 47,666 | ||||
Shares issued to settle debt, Shares | 953,333 | ||||||
Shares issuable in payment of accrued interest | 15,578 | 15,578 | |||||
Shares issued for cash | 45,000 | 180,000 | 225,000 | ||||
Shares issued for cash, Shares | 4,500,000 | ||||||
Net (loss) | -32,107,140 | -32,107,140 | |||||
Ending Balance at Dec. 31, 2013 | 777,276 | 54,757,845 | 129,881 | -85,203,969 | -773,500 | -30,312,467 | |
Ending Balance, Shares at Dec. 31, 2013 | 77,727,669 | ||||||
Shares issuable in payment of accrued interest | 16,005 | 16,005 | |||||
Net (loss) | -12,000,503 | -12,000,503 | |||||
Ending Balance at Sep. 30, 2014 | $777,276 | $54,757,845 | $145,886 | ($97,204,472) | ($773,500) | ($42,296,965) | |
Ending Balance, Shares at Sep. 30, 2014 | 77,727,669 |
1_Summary_of_Business_and_Basi
1. Summary of Business and Basis of Presentation | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | |
Summary of Business and Basis of Presentation | Organization and Business |
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. (the “Company”) is a recreational power sports Original Equipment Manufacturer (“OEM”), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. | |
Basis of Presentation | |
The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, US Highlands Electric Inc. All significant intercompany transactions and balances have been eliminated. | |
The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Certain prior year amounts have been reclassified to conform to current year presentation. | |
Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading. | |
These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended December 31, 2013 included in the Company’s Annual Report on Form 10K filed on May 6, 2014 (the “2013 Annual Report”). | |
Significant Accounting Policies | |
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report. | |
Going concern | |
The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from operations, and as of September 30, 2014, current liabilities exceed current assets by $41,800,434, and the Company has an accumulated deficit of $97,204,472. The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, and internally generated working capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. | |
Earnings (Loss) Per Share | |
Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. The calculation of basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same. At September 30, 2014 and 2013, approximately 91,886,000 and 51,090,000 shares, respectively, underlying the convertible debentures and warrants were antidilutive. |
2_Inventory
2. Inventory | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | |
Inventory | Inventory is stated at the lower of cost or market, utilizing the specific lot identification method. At December 31, 2013, inventory consisted of raw materials. During the nine months ended September 30, 2014, the Company recorded an inventory write-down of $125,616 to reduce inventory to its net realizable value of $0. |
3_Property_and_Equipment
3. Property and Equipment | 9 Months Ended | ||||||||||
Sep. 30, 2014 | |||||||||||
Notes to Financial Statements | |||||||||||
Property and Equipment | Property and equipment consists of the following: | ||||||||||
Useful | September 30, | December 31, | |||||||||
Life | 2014 | 2013 | |||||||||
Computers and office equipment | 3 years | $ | 15,930 | $ | 15,930 | ||||||
Manufacturing equipment | 5 - 10 years | 28,408 | 28,408 | ||||||||
44,338 | 44,338 | ||||||||||
Accumulated depreciation | (27,347 | ) | (19,783 | ) | |||||||
Property and equipment, net | $ | 16,991 | $ | 24,555 | |||||||
Depreciation expense amounted to approximately $7,564 and $7,845 for the nine months ended September 30, 2014 and 2013, respectively. |
4_Loans_Payable
4. Loans Payable | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Notes to Financial Statements | ||||||||||
Loans Payable | Loans payable consist of the following: | September 30, | December 31, | |||||||
2014 | 2013 | |||||||||
a) | Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing. | $ | 25,000 | $ | 25,000 | |||||
b) | Note payable which is unsecured, non-guaranteed, past due and bears interest at 10% per annum. | 7,500 | 7,500 | |||||||
c) | On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at September 30, 2014, the Company recognized the fair value of 7,000 (December 31, 2013 – 5,500) common shares issuable for interest expense of $124,537 (December 31, 2013 - $120,282), as shares reserved for future issuance. The Company has not yet issued these common shares. As at September 30, 2014, the Company has also accrued interest expense of $24,920 (December 31, 2013 - $19,880). | 56,000 | 56,000 | |||||||
d) | On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly. In addition, the Company is required to issue 5,000 common shares every month until the loan is repaid in full. As of September 30, 2014, the Company recognized the fair value of 65,000 (December 31, 2013 - 20,000) common shares issuable for interest expense of $21,350 (December 31, 2013 - $9,600), as shares reserved for future issuance. The Company has not yet issued these common shares. As at September 30, 2014, the Company has also accrued interest expense of $317 (December 31, 2013 - $125). | 27,000 | 27,000 | |||||||
e) | On February 27, 2014, May 9 2014, and July 11, 2014 the Company received advances from a director of $6,000, $3,300 and $9,000, respectively. The Company repaid $3,300 on June 12, 2014 and $9,000 on July 28, 2014. The outstanding amount is unsecured, due on demand and bears interest at 1% per annum compounded and calculated monthly. | 6,000 | – | |||||||
f) | On September 18, 2014, the Company entered into an unsecured, non-guaranteed, loan agreement pursuant to which the Company received proceeds of $35,000. The loan bears interest at 8% per annum compounded annually and is due 1 year after the date of issuance. | 35,000 | – | |||||||
g) | On August 26, 2014, the Company issued an unsecured $15,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum, is uncollateralized, and due 1 year after the date of issuance. | 15,000 | – | |||||||
The Company issued the following unsecured notes payable to a significant shareholder. The notes bear interest at an annual rate of 8% per annum, are uncollateralized, and are due 2 years after the date of issuance: | ||||||||||
a) | On January 17, 2014, the Company issued a $50,000 note payable. | 50,000 | – | |||||||
b) | On January 29, 2014 the Company issued a $50,000 note payable. | 50,000 | – | |||||||
c) | On February 19, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
d) | On March 3, 2014, the Company issued a $50,000 note payable. | 50,000 | – | |||||||
e) | On March 19, 2014, the Company issued a $150,000 note payable. | 150,000 | – | |||||||
f) | On April 25, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
g) | On May 19, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
h) | On June 2, 2014, the Company issued an $18,000 note payable. | 18,000 | – | |||||||
i) | On June 12, 2014, the Company issued a $32,000 note payable. | 32,000 | – | |||||||
j) | On July 1, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
k) | On July 16, 2014, the Company issued a $75,000 note payable to a related party. On July 23, the note holder assigned the note to a related party. | 75,000 | – | |||||||
Total | $ | 696,500 | $ | 115,500 | ||||||
Less Short Term | (171,500 | ) | (115,500 | ) | ||||||
Long Term | $ | 525,000 | $ | – | ||||||
5_Convertible_Debentures
5. Convertible Debentures | 9 Months Ended | ||
Sep. 30, 2014 | |||
Notes to Financial Statements | |||
Convertible Debentures | a) | Effective January 25, 2010, the Company issued a convertible note for $225,000. Pursuant to the terms of the agreement, the loan was unsecured, non-interest bearing, and was due on December 21, 2010. The note was convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 65% of the average of the closing bid prices of the common stock during the 28 trading days prior to the date of the conversion notice and was subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liability of $538,249 resulted in a full discount to the note payable of $225,000 and the recognition of a loss on derivatives of $313,249. | |
On June 2, 2010, the Company issued 6,386 restricted shares of common stock upon the conversion of the principal amount of $166,667. The fair value of the derivative liability at June 2, 2010, was $266,425 and $197,352 was reclassified to additional paid-in capital upon conversion. During the year ended December 31, 2013, the Company repaid $2,000 of the note and during the nine months ended September 30, 2014, the Company repaid an additional $1,000. At September 30, 2014, the carrying value of the note was $55,333 (December 31, 2013 - $56,333). The note is in default at September 30, 2014. | |||
b) | Effective July 25, 2013, the Company issued a convertible note to secure a demand loan of $75,000. Pursuant to the terms of the agreement, the loan is unsecured and convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand. | ||
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $577,797 resulted in a discount to the note payable of $75,000 and the recognition of a loss on derivatives of $502,797. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013. | |||
c) | Effective July 25, 2013, the Company issued a convertible note to secure the demand loan of $45,000. Pursuant to the terms of the agreement, the loan is unsecured and convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand. | ||
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $346,678 resulted in a discount to the note payable of $45,000 and the recognition of a loss on derivatives of $301,678. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013. | |||
d) | On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company’s common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. The note is secured against substantially all of the assets of the Company. | ||
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | |||
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $6,714,279 and warrants of $3,169,531 resulted in a discount to the note payable of $500,000 and the recognition of a loss on derivatives of $9,383,810. | |||
On July 24, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $474,668. The Company also recognized the fair value of the embedded conversion feature of $24,501,757 as a derivative liability and reduced the value of the convertible loan to $nil. The fair value of the derivative liability was $22,000,404 at September 30, 2014. During the nine months ended September 30, 2014, the Company recorded total accretion of $437,350 and at September 30, 2014 the carrying value of the note was $53,285. | |||
e) | On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 10,197,916 underlying shares of the Company’s common stock. The warrants are exercisable into 8,158,333 common shares of the Company at $0.05 per share and 2,039,583 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $273,700 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. | ||
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | |||
Due to the potential adjustments to the conversion rate of the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $5,278,978 and warrants of $2,450,519 resulted in a discount to the note payable of $273,700 and the recognition of a loss on derivatives of $7,455,797. | |||
The note was not repaid on July 31, 2014. On August 4, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $273,700. The Company also recognized the fair value of the embedded conversion feature of $13,685,849 as a derivative liability and reduced the value of the convertible loan to $nil. | |||
The fair value of the derivative liability was $12,043,021 at September 30, 2014. During the nine months ended September 30, 2014, the Company recorded total accretion of $257,956 and at September 30, 2014 the carrying value of the note was $36,264. | |||
f) | Effective November 12, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 694,445 underlying shares of the Company’s common stock. The warrants are exercisable into 555,556 common shares of the Company at $0.05 per share and 138,889 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $20,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest was due on July 31, 2014. | ||
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | |||
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $250,021 and warrants of $145,943 resulted in a discount to the note payable of $20,000 and the recognition of a loss on derivatives of $375,964. During the nine months ended September 30, 2014, the Company recorded accretion of $13,479 increasing the carrying value of the note to $20,000. The note was not repaid on July 31, 2014. The note is in default at September 30, 2014. | |||
g) | Effective October 7, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 868,055 underlying shares of the Company’s common stock. The warrants are exercisable into 694,444 common shares of the Company at $0.05 per share and 173,611 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $25,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. | ||
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | |||
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $312,522 and warrants of $182,522 resulted in a discount to the note payable of $25,000 and the recognition of a loss on derivatives of $470,045. | |||
On July 24, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $25,000. The Company also recognized the fair value of the embedded conversion feature of $1,250,082 as a derivative liability and reduced the value of the convertible loan to $nil. | |||
The fair value of the derivative liability was $1,100,020 at September 30, 2014. During the nine months ended September 30, 2014, the Company recorded total accretion of $26,387 and at September 30, 2014 the carrying value of the note was $9,355. | |||
h) | On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 739,584 underlying shares of the Company’s common stock. The warrants are exercisable into 591,667 common shares of the Company at $0.05 per share and 147,917 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $41,300 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. | ||
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | |||
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $547,736 and warrants of $187,531, resulted in a discount to the note payable of $41,300 and the recognition of a loss on derivatives of $693,967. | |||
On August 4, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $41,300. The Company also recognized the fair value of the embedded conversion feature of $2,065,135 as a derivative liability and reduced the value of the convertible loan to $nil. | |||
The fair value of the derivative liability was $1,817,233 at September 30, 2014. During the nine months ended September 30, 2014, the Company recorded total accretion of $42,024 and at September 30, 2014, the carrying value of the note was $17,369. |
6_Derivative_Liabilities
6. Derivative Liabilities | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Notes to Financial Statements | |||||||||||||||||
Derivative Liabilities | The embedded conversion options of the Company’s convertible debentures described in Note 5 contain conversion features that qualify for embedded derivative classification. The warrants described in Note 8 also qualify for derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments. | ||||||||||||||||
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities: | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2014 | 2013 | ||||||||||||||||
Balance at the beginning of period | $ | 29,430,719 | $ | 941,464 | |||||||||||||
Addition of new derivative liabilities (embedded conversion options) | – | 14,028,014 | |||||||||||||||
Addition of new derivative liabilities (warrants) | 53,606 | 9,209,794 | |||||||||||||||
Change in fair value of warrants | (5,346,878 | ) | (627,690 | ) | |||||||||||||
Change in fair value of embedded conversion option | 16,152,736 | 9,128,915 | |||||||||||||||
Expiration of warrants | (3,502 | ) | – | ||||||||||||||
Conversion of warrants | – | (3,249,778 | ) | ||||||||||||||
Balance at the end of the period | $ | 40,286,681 | $ | 29,430,719 | |||||||||||||
The following table summarizes the change in fair value of derivatives: | |||||||||||||||||
Change in Fair Value of Derivative Liabilities | |||||||||||||||||
$ | |||||||||||||||||
Three months ended September 30, 2014: | |||||||||||||||||
Change in fair value of derivative liabilities during the three months ended September 30, 2014 | (1,991,170 | ) | |||||||||||||||
Change in fair value of derivatives | (1,991,170 | ) | |||||||||||||||
Three months ended September 30, 2013: | |||||||||||||||||
Fair value of derivative liabilities in excess of note proceeds received | (12,412,823 | ) | |||||||||||||||
Change in fair value of derivative liabilities during the three months ended September 30, 2013 | 329,317 | ||||||||||||||||
Change in fair value of derivatives | (12,083,506 | ) | |||||||||||||||
Change in Fair Value of Derivative Liabilities | |||||||||||||||||
$ | |||||||||||||||||
Nine months ended September 30, 2014: | |||||||||||||||||
Change in fair value of derivative liabilities during the nine months ended September 30, 2014 | (10,800,605 | ) | |||||||||||||||
Change in fair value of derivatives | (10,800,605 | ) | |||||||||||||||
Nine months ended September 30, 2013: | |||||||||||||||||
Fair value of derivative liabilities in excess of note proceeds received | (12,412,823 | ) | |||||||||||||||
Change in fair value of derivative liabilities during the nine months ended September 30, 2013 | (124,167 | ) | |||||||||||||||
Change in fair value of derivatives | (12,536,990 | ) | |||||||||||||||
The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations: | |||||||||||||||||
Expected | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | ||||||||||||||
Volatility | |||||||||||||||||
At December 31, 2013 | 29% -209% | 0.10%-0.58% | 0 | % | 0.58-3.00 | ||||||||||||
At issuance | 209% | 0.38% | 0 | % | 3 | ||||||||||||
At September 30, 2014 | 117%-228% | 0.02%-0.58% | 0 | % | 0.17-2.26 |
7_Common_Stock
7. Common Stock | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | |
Common Stock | There were no share transactions during the nine months ended September 30, 2014. |
8_Stock_Purchase_Warrants
8. Stock Purchase Warrants | 9 Months Ended | ||||||||||
Sep. 30, 2014 | |||||||||||
Notes to Financial Statements | |||||||||||
Stock Purchase Warrants | a) | On January 2, 2014, the Company entered into a settlement agreement with a consultant to settle $11,800 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 43,750 shares of common stock at $0.0005 per share for three years. | |||||||||
b) | On January 3, 2014, the Company entered into a settlement agreement with a consultant to settle $41,806 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 155,000 shares of common stock at $0.0005 per share for three years. | ||||||||||
A summary of the changes in the Company’s common share purchase warrants is presented below: | |||||||||||
Number | Weighted Average Exercise Price | Weighted Average Remaining Term | |||||||||
Balance December 31, 2013 | 27,214,166 | $ | 0.08 | 0.70 years | |||||||
Issued | 198,750 | 0.0005 | |||||||||
Expired | (25,133,333 | ) | 0.0677 | ||||||||
Balance September 30, 2014 | 2,279,583 | $ | 0.17 | 1.34 years |
9_Commitments_and_Contingencie
9. Commitments and Contingencies | 9 Months Ended | ||||
Sep. 30, 2014 | |||||
Notes to Financial Statements | |||||
Commitments | a) | The Company entered into a consulting agreement dated September 20, 2011 with a director of the Company for services to be provided for a term of three years. The Company agreed to pay $2,250 per month, as well as issue 16,667 shares of common stock. The agreement was subsequently suspended. During the nine months ended September 30, 2014, the Company recorded $nil (2013 - $10,000) of professional fees. | |||
b) | During the year ended December 31, 2012, the Company entered into two leases for the provision of office and warehouse space until April 30, 2015. On April 1, 2013, the Company entered into an amendment to the lease agreements. Pursuant to the amendment, one of the leases was terminated and the other was extended to March 31, 2019. During the nine months ended September 30, 2014, the Company recognized $46,454 (2013 - $37,203) of rent expense. The Company’s future minimum lease payments are as follows: | ||||
Twelve months ending September 30, 2015 | $ | 53,147 | |||
Twelve months ending September 30, 2016 | 55,140 | ||||
Twelve months ending September 30, 2017 | 57,133 | ||||
Twelve months ending September 30, 2018 | 59,126 | ||||
Twelve months ending September 30, 2019 | 30,223 | ||||
$ | 254,769 | ||||
c) | The Company issued a $500,000 convertible note on July 25, 2013, of which so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. | ||||
d) | On May 13, 2014, the Company terminated the former CEO and President of the Company’s employment agreement in accordance with its terms. Also on May 13, 2014, the Company terminated an employment agreement with an employee in accordance with its terms. | ||||
e) | On June 17, 2014, the Company was informed that a debtor will be instituting legal proceedings against the Company for collection of the sum of $76,712. The Company believes it owes the debtor $9,986 which it has recorded as owing. Accordingly, the Company intends to defend these potential matters vigorously. | ||||
f) | On June 26, 2014, the Company was informed that a debtor will be instituting legal proceedings against the Company for collection of the sum of $17,534. The Company believes it owes the debtor $11,705 which it has recorded as owing. Accordingly, the Company intends to defend these potential matters vigorously. | ||||
g) | On December 16, 2013, the Company was informed that a vendor will be instituting legal proceedings against the Company for collection of the sum of $12,455. The Company believes it does not owe the vendor anything. Accordingly, the Company intends to defend these potential matters vigorously. | ||||
h) | On July 8, 2014, the Company filed civil actions against the former CEO and President, and against a former employee of the Company. The petitions allege they breached the terms and conditions of their employment agreements with the Company, converted property belonging to the Company, and filed false and wrongful claims with the Oklahoma Department of Labor. Neither former employee has filed answers to the petitions, although the Company expects them to do so and to file counterclaims against the Company. On August 7, 2014, the Oklahoma Department of Labor entered an Administrative Order of Determination in favor of the former CEO and President of the Company in the amount of $72,000 and liquidated damages of $72,000; and also entered an Administrative Order of Determination in favor of the former employee in the amount of $54,000 and liquidated damages of $54,000. The Company has requested a rehearing, re-opening and reconsideration of the administrative orders with the Oklahoma Department of Labor. At September 30, 2014, the Company had accrued a total of $252,000 pursuant to the Administrative Order of Determination. | ||||
i) | On August 8, 2014, the Company entered into an employment agreement with an existing employee. Pursuant to the agreement the employee will act as the Interim CFO and Secretary of the Company for an initial period of six months in consideration for $1,200 per month in addition to the employee’s current salary structure of $60,000 per year. |
10_Subsequent_Events
10. Subsequent Events | 9 Months Ended | ||
Sep. 30, 2014 | |||
Notes to Financial Statements | |||
Subsequent Events | a) | On October 7, 2014, the Company received an advance from a director of $7,000. The outstanding amount is unsecured, due on demand and bears interest at 1% per annum compounded and calculated monthly. The loan was repaid on October 8, 2014. | |
b) | On October 7, 2014, the Company entered into a note payable with a related party, pursuant to which the Company received proceeds of $30,000. The note is bears interest at an annual rate of 8% per annum and due on October 7, 2016. | ||
c) | On October 31, 2014, the Company entered into a note payable with a related party, pursuant to which the Company received proceeds of $20,000. The note is bears interest at an annual rate of 8% per annum and due on October 31, 2016. | ||
d) | On November 4, 2014, the Company entered into a note payable with a related party, pursuant to which the Company received proceeds of $32,000. The note is bears interest at an annual rate of 8% per annum and due on November 4, 2016. | ||
e) | The Company failed to repay the convertible notes described in Notes 5(d), (e), (g) and (h) when they became due on December 31, 2014. The Company is attempting to negotiate a further extension. |
1_Summary_of_Business_and_Basi1
1 . Summary of Business and Basis of Presentation (Policies) | 9 Months Ended |
Sep. 30, 2014 | |
Summary Of Business And Basis Of Presentation Policies | |
Organization and Business | 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. (the “Company”) is a recreational power sports Original Equipment Manufacturer (“OEM”), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. |
Basis of Presentation | The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, US Highlands Electric Inc. All significant intercompany transactions and balances have been eliminated. |
The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Certain prior year amounts have been reclassified to conform to current year presentation. | |
Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading. | |
These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended December 31, 2013 included in the Company’s Annual Report on Form 10K filed on May 6, 2014 (the “2013 Annual Report”). | |
Significant Accounting Policies | There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report. |
Going concern | The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from operations, and as of September 30, 2014, current liabilities exceed current assets by $41,800,434, and the Company has an accumulated deficit of $97,204,472. The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, and internally generated working capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. |
Earnings (Loss) Per Share | Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. The calculation of basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same. At September 30, 2014 and 2013, approximately 91,886,000 and 51,090,000 shares, respectively, underlying the convertible debentures and warrants were antidilutive. |
3_Property_and_Equipment_Table
3. Property and Equipment (Tables) | 9 Months Ended | ||||||||||
Sep. 30, 2014 | |||||||||||
Property And Equipment Tables | |||||||||||
Property, Plant and Equipment | Useful | September 30, | December 31, | ||||||||
Life | 2014 | 2013 | |||||||||
Computers and office equipment | 3 years | $ | 15,930 | $ | 15,930 | ||||||
Manufacturing equipment | 5 - 10 years | 28,408 | 28,408 | ||||||||
44,338 | 44,338 | ||||||||||
Accumulated depreciation | (27,347 | ) | (19,783 | ) | |||||||
Property and equipment, net | $ | 16,991 | $ | 24,555 | |||||||
4_Loans_Payable_Tables
4. Loans Payable (Tables) | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Loans Payable Tables | ||||||||||
Schedule of Debt | September 30, | December 31, | ||||||||
2014 | 2013 | |||||||||
a) | Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing. | $ | 25,000 | $ | 25,000 | |||||
b) | Note payable which is unsecured, non-guaranteed, past due and bears interest at 10% per annum. | 7,500 | 7,500 | |||||||
c) | On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at September 30, 2014, the Company recognized the fair value of 7,000 (December 31, 2013 – 5,500) common shares issuable for interest expense of $124,537 (December 31, 2013 - $120,282), as shares reserved for future issuance. The Company has not yet issued these common shares. As at September 30, 2014, the Company has also accrued interest expense of $24,920 (December 31, 2013 - $19,880). | 56,000 | 56,000 | |||||||
d) | On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly. In addition, the Company is required to issue 5,000 common shares every month until the loan is repaid in full. As of September 30, 2014, the Company recognized the fair value of 65,000 (December 31, 2013 - 20,000) common shares issuable for interest expense of $21,350 (December 31, 2013 - $9,600), as shares reserved for future issuance. The Company has not yet issued these common shares. As at September 30, 2014, the Company has also accrued interest expense of $317 (December 31, 2013 - $125). | 27,000 | 27,000 | |||||||
e) | On February 27, 2014, May 9 2014, and July 11, 2014 the Company received advances from a director of $6,000, $3,300 and $9,000, respectively. The Company repaid $3,300 on June 12, 2014 and $9,000 on July 28, 2014. The outstanding amount is unsecured, due on demand and bears interest at 1% per annum compounded and calculated monthly. | 6,000 | – | |||||||
f) | On September 18, 2014, the Company entered into an unsecured, non-guaranteed, loan agreement pursuant to which the Company received proceeds of $35,000. The loan bears interest at 8% per annum compounded annually and is due 1 year after the date of issuance. | 35,000 | – | |||||||
g) | On August 26, 2014, the Company issued an unsecured $15,000 note payable to a significant shareholder. The note bears interest at an annual rate of 8% per annum, is uncollateralized, and due 1 year after the date of issuance. | 15,000 | – | |||||||
The Company issued the following unsecured notes payable to a significant shareholder. The notes bear interest at an annual rate of 8% per annum, are uncollateralized, and are due 2 years after the date of issuance: | ||||||||||
a) | On January 17, 2014, the Company issued a $50,000 note payable. | 50,000 | – | |||||||
b) | On January 29, 2014 the Company issued a $50,000 note payable. | 50,000 | – | |||||||
c) | On February 19, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
d) | On March 3, 2014, the Company issued a $50,000 note payable. | 50,000 | – | |||||||
e) | On March 19, 2014, the Company issued a $150,000 note payable. | 150,000 | – | |||||||
f) | On April 25, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
g) | On May 19, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
h) | On June 2, 2014, the Company issued an $18,000 note payable. | 18,000 | – | |||||||
i) | On June 12, 2014, the Company issued a $32,000 note payable. | 32,000 | – | |||||||
j) | On July 1, 2014, the Company issued a $25,000 note payable. | 25,000 | – | |||||||
k) | On July 16, 2014, the Company issued a $75,000 note payable to a related party. On July 23, the note holder assigned the note to a related party. | 75,000 | – | |||||||
Total | $ | 696,500 | $ | 115,500 | ||||||
Less Short Term | (171,500 | ) | (115,500 | ) | ||||||
Long Term | $ | 525,000 | $ | – | ||||||
6_Derivative_Liabilities_Table
6. Derivative Liabilities (Tables) | 9 Months Ended | |||||||||||||||
Sep. 30, 2014 | ||||||||||||||||
Derivative Liabilities Tables | ||||||||||||||||
Schedule of Derivative Instruments | September 30, | December 31, | ||||||||||||||
2014 | 2013 | |||||||||||||||
Balance at the beginning of period | $ | 29,430,719 | $ | 941,464 | ||||||||||||
Addition of new derivative liabilities (embedded conversion options) | – | 14,028,014 | ||||||||||||||
Addition of new derivative liabilities (warrants) | 53,606 | 9,209,794 | ||||||||||||||
Change in fair value of warrants | (5,346,878 | ) | (627,690 | |||||||||||||
Change in fair value of embedded conversion option | 16,152,736 | 9,128,915 | ||||||||||||||
Expiration of warrants | (3,502 | ) | – | |||||||||||||
Conversion of warrants | – | (3,249,778 | ||||||||||||||
Balance at the end of the period | $ | 40,286,681 | $ | 29,430,719 | ||||||||||||
Fair Value, by Balance Sheet Grouping | Change in Fair Value of Derivative Liabilities | |||||||||||||||
$ | ||||||||||||||||
Three months ended September 30, 2014: | ||||||||||||||||
Change in fair value of derivative liabilities during the three months ended September 30, 2014 | (1,991,170 | ) | ||||||||||||||
Change in fair value of derivatives | (1,991,170 | ) | ||||||||||||||
Three months ended September 30, 2013: | ||||||||||||||||
Fair value of derivative liabilities in excess of note proceeds received | (12,412,823 | ) | ||||||||||||||
Change in fair value of derivative liabilities during the three months ended September 30, 2013 | 329,317 | |||||||||||||||
Change in fair value of derivatives | (12,083,506 | ) | ||||||||||||||
Change in Fair Value of Derivative Liabilities | ||||||||||||||||
$ | ||||||||||||||||
Nine months ended September 30, 2014: | ||||||||||||||||
Change in fair value of derivative liabilities during the nine months ended September 30, 2014 | (10,800,605 | ) | ||||||||||||||
Change in fair value of derivatives | (10,800,605 | ) | ||||||||||||||
Nine months ended September 30, 2013: | ||||||||||||||||
Fair value of derivative liabilities in excess of note proceeds received | (12,412,823 | ) | ||||||||||||||
Change in fair value of derivative liabilities during the nine months ended September 30, 2013 | (124,167 | ) | ||||||||||||||
Change in fair value of derivatives | (12,536,990 | ) | ||||||||||||||
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | Expected | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | ||||||||||||
Volatility | ||||||||||||||||
At December 31, 2013 | 29% - 209% | 0.10%-0.58% | 0 | % | 0.58-3.00 | |||||||||||
At issuance | 209% | 0.38% | 0 | % | 3 | |||||||||||
At September 30, 2014 | 117%-228% | 0.02%-0.58% | 0 | % | 0.17-2.26 |
8_Stock_Purchase_Warrants_Tabl
8. Stock Purchase Warrants (Tables) | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Stock Purchase Warrants Tables | ||||||||||
Schedule of Share-based Compensation, Stock Options and Stock Appreciation Rights Award Activity | Number | Weighted Average Exercise Price | Weighted Average Remaining Term | |||||||
Balance December 31, 2013 | 27,214,166 | $ | 0.08 | 0.70 years | ||||||
Issued | 198,750 | 0.0005 | ||||||||
Expired | (25,133,333 | ) | 0.0677 | |||||||
Balance September 30, 2014 | 2,279,583 | $ | 0.17 | 1.34 years |
9_Commitments_and_Contingencie1
9. Commitments and Contingencies (Tables) | 9 Months Ended | |||
Sep. 30, 2014 | ||||
Commitments And Contingencies Tables | ||||
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | Twelve months ending September 30, 2015 | $ | 53,147 | |
Twelve months ending September 30, 2016 | 55,140 | |||
Twelve months ending September 30, 2017 | 57,133 | |||
Twelve months ending September 30, 2018 | 59,126 | |||
Twelve months ending September 30, 2019 | 30,223 | |||
$ | 254,769 |
1_Summary_of_Business_and_Basi2
1. Summary of Business and Basis of Presentation (Details Narrative) (USD $) | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Summary Of Business And Basis Of Presentation Details Narrative | |||
Current liabilities exceed current assets | $41,800,434 | ||
Accumulated deficit | $97,204,472 | $85,203,969 | |
Antidilutive convertible debentures and warrants | 91,886,000 | 51,090,000 |
2_Inventory_Details_Narrative
2. Inventory (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Inventory Details Narrative | ||
Write down of inventory | $125,616 |
3_Property_and_Equipment_Detai
3. Property and Equipment (Details) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Dec. 31, 2013 | |
Computers and office equipment | 15,930 | $15,930 |
Manufacturing equipment | 28,408 | 28,408 |
Property and Equipment Gross | 44,338 | 44,338 |
Accumulated depreciation | -27,347 | -19,783 |
Property and equipment, net | 16,991 | $24,555 |
Computers and office equipment | ||
Property, Plant and Equipment, Useful Life | 3 years | |
Manufacturing equipment [Member] | Minimum [Member] | ||
Property, Plant and Equipment, Useful Life | 5 years | |
Manufacturing equipment [Member] | Maximum [Member] | ||
Property, Plant and Equipment, Useful Life | 10 years |
3_Property_and_Equipment_Detai1
3. Property and Equipment (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Property And Equipment Details Narrative | ||
Depreciation, Depletion and Amortization, Nonproduction | $7,564 | $7,845 |
4_Loans_Payable_Details
4. Loans Payable (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Loan Payable | $696,500 | $115,500 |
Less Short Term | -171,500 | -115,500 |
Long Term | 525,000 | |
Loan 1 [Member] | ||
Loan Payable | 25,000 | 25,000 |
Loan 2 [Member] | ||
Loan Payable | 7,500 | 7,500 |
Loan 3 [Member] | ||
Loan Payable | 56,000 | 56,000 |
Loan 4 [Member] | ||
Loan Payable | 27,000 | 27,000 |
Loan 5 [Member] | ||
Loan Payable | 6,000 | |
Loan 6 [Member] | ||
Loan Payable | 35,000 | |
Loan 7 [Member] | ||
Loan Payable | 15,000 | |
Loan 8 [Member] | ||
Loan Payable | 50,000 | |
Loan 9 [Member] | ||
Loan Payable | 50,000 | |
Loan 10 [Member] | ||
Loan Payable | 25,000 | |
Loan 11 [Member] | ||
Loan Payable | 50,000 | |
Loan 12 [Member] | ||
Loan Payable | 150,000 | |
Loan 13 [Member] | ||
Loan Payable | 25,000 | |
Loan 14 [Member] | ||
Loan Payable | 25,000 | |
Loan 15 [Member] | ||
Loan Payable | 18,000 | |
Loan 16 [Member] | ||
Loan Payable | 32,000 | |
Loan 17 [Member] | ||
Loan Payable | 25,000 | |
Loan 18 [Member] | ||
Loan Payable | $75,000 |
5_Convertible_Debentures_Detai
5. Convertible Debentures (Details Narrative) (USD $) | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | Dec. 31, 2013 | |
Repayments of Notes Payable | $1,000 | $2,000 | ||
Debt Instrument, Face Amount | 55,333 | 56,333 | 56,333 | |
Accretion Expense | 777,196 | 171,250 | ||
Conversion option warrants [Member] | ||||
Company received proceeds under the note | 500,000 | |||
Fair value of the derivative liability | 22,000,404 | |||
Accretion Expense | 437,350 | |||
Increasing the carrying value of the note | 53,285 | |||
Conversion option warrants one [Member] | ||||
Company received proceeds under the note | 273,700 | |||
Fair value of the derivative liability | 12,043,021 | |||
Accretion Expense | 257,956 | |||
Increasing the carrying value of the note | 36,264 | |||
Conversion option warrants two [Member] | ||||
Company received proceeds under the note | 20,000 | |||
Fair value of the derivative liability | ||||
Accretion Expense | 13,479 | |||
Increasing the carrying value of the note | 20,000 | |||
Conversion option warrants three [Member] | ||||
Company received proceeds under the note | 25,000 | |||
Fair value of the derivative liability | 1,100,020 | |||
Accretion Expense | 26,387 | |||
Increasing the carrying value of the note | 9,355 | |||
Conversion option warrants four [Member] | ||||
Company received proceeds under the note | 41,300 | |||
Fair value of the derivative liability | 1,817,233 | |||
Accretion Expense | 42,024 | |||
Increasing the carrying value of the note | $17,369 |
6_Derivative_Liabilities_Detai
6. Derivative Liabilities (Details) (USD $) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2014 | Dec. 31, 2013 | |
Derivative Liabilities Details | ||
Balance at the beginning of period | $29,430,719 | $941,464 |
Addition of new derivative liabilities (embedded conversion options) | 14,028,014 | |
Addition of new derivative liabilities (warrants) | 53,606 | 9,209,794 |
Change in fair value of warrants | -5,346,878 | -627,690 |
Change in fair value of embedded conversion option | 16,152,736 | 9,128,915 |
Expiration of warrants | -3,502 | |
Conversion of warrants | -3,249,778 | |
Balance at the end of the period | $40,286,681 | $29,430,719 |
6_Derivative_Liabilities_Detai1
6. Derivative Liabilities (Details 1) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Derivative Liabilities Details 1 | ||||
Fair value of derivative liabilities in excess of note proceeds received | ($12,412,823) | ($12,412,823) | ||
Change in fair value of derivative liabilities | -1,991,170 | 329,317 | -10,800,605 | -124,167 |
Change in fair value of derivatives | ($1,991,170) | ($12,083,506) | ($10,800,605) | ($12,536,990) |
6_Derivative_Liabilities_Detai2
6. Derivative Liabilities (Details 2) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2014 | Dec. 31, 2013 | |
Expected Volatility | 209.00% | |
Risk-free Interest Rate | 0.38% | |
Expected Dividend Yield | 0.00% | |
Expected Life (in years) | 3 years | |
Minimum [Member] | ||
Expected Volatility | 117.00% | 29.00% |
Risk-free Interest Rate | 0.02% | 0.10% |
Expected Dividend Yield | 0.00% | 0.00% |
Expected Life (in years) | 29 days | 6 months 29 days |
Maximum [Member] | ||
Expected Volatility | 228.00% | 209.00% |
Risk-free Interest Rate | 0.58% | 0.58% |
Expected Dividend Yield | 0.00% | 0.00% |
Expected Life (in years) | 2 years 6 months 4 days | 3 years |
8_Stock_Purchase_Warrants_Deta
8. Stock Purchase Warrants (Details) (USD $) | 9 Months Ended |
Sep. 30, 2013 | |
Stock Purchase Warrants Details | |
Number Beginning Balance | 27,214,166 |
Issued | 198,750 |
Expired | -25,133,333 |
Number Ending Balance | 2,279,583 |
Weighted Average Exercise Price Beginning Balance | $0.08 |
Issued | $0.00 |
Expired | $0.07 |
Weighted Average Exercise Price Ending Balance | $0.17 |
Weighted Average Remaining Term Beginning Balance | 8 months 12 days |
Weighted Average Remaining Term Ending Balance | 1 year 4 months 2 days |
9_Commitments_Details
9. Commitments (Details) (USD $) | Sep. 30, 2014 |
Commitments Details | |
Twelve months ending September 30, 2015 | $53,147 |
Twelve months ending September 30, 2016 | 55,140 |
Twelve months ending September 30, 2017 | 57,133 |
Twelve months ending September 30, 2018 | 59,126 |
Twelve months ending September 30, 2019 | 30,223 |
Total | $254,769 |
9_Commitments_Details_Narrativ
9. Commitments (Details Narrative) (Employment Contracts [Member], USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Employment Contracts [Member] | ||
Accrued Professional Fees | $0 | $10,000 |
Rent expense | $46,454 | $37,203 |