U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File Number: 333-50982
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 98-0179679
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
480 Route 9 North Englishtown, New Jersey
(Address of principal executive offices)
(732) 617-2855
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No _____
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ____ No _____
Applicable only to Corporate Issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: 1,272,326 as of June 30, 2001.
Transitional Small Business Disclosure Format (Check One): Yes ____ No X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30,
2001
Assets
Current assets
Cash $ 2,798
-----------
Property & equipment-net 1,115
-----------
Total assets $ 3,913
===========
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued expenses $ 22,931
Officer loan payable 153,612
Contract payable 103,000
-----------
Total liabilities 279,543
Stockholders deficit
Preferred stock- $.001 par value authorized 5,000,000 shares. The number of
shares outstanding; -0-
Capital stock-$.001 par value authorized 20,000,000 shares. The number of shares
outstanding; 1,272,326 1,272
Additional paid in capital 2,097,767
Accumulated other comprehensive income: Currency translation 5,982
Accumulated deficit during exploration stage (2,380,651)
-----------
Total stockholders deficit
(275,630)
-----------
Total liabilities and stockholders deficit $ 3,913
===========
See accompanying notes to financial statements.
F1
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
For the six For the six For the three For the three For the period
month period month period month period month period from inception,
ended ended ended ended March 23, 1992
June 30, June 30, June 30, June 30, to June 30,
2001 2000 2001 2000 2001
---- ---- ---- ---- ----
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Income $ -0- $ -0- $ -0- $ -0- $ -0-
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Cost of goods sold -0- -0- -0- -0- -0-
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Gross profit -0- -0- -0- -0- -0-
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Operations:
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
General and administration 9,406 21,289 854 2,407 875,984
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Exploration costs 14,900 48,506 7,400 31,400 785,275
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Non cash compensation-
consulting fees 50,000 -0- -0- -0- 225,500
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Non cash payment for
mining interests -0- -0- -0- -0- 391,753
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Realized and unrealized loss
on trading securities-net -0- 13,286 -0- 1,900 30,418
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Depreciation and
amortization 720 -0- 360 -0- 6,844
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Total expense 75,026 83,081 8,614 35,707 2,315,744
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Loss from continuing operations (75,026) (83,081) 8,614 35,707 (2,315,744)
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Other income and loss:
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Interest expense -0- (169) -0- -0- (64,877)
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Total other income and expenses (-0-) (169) (-0-) (-0-) (64,877)
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Net Profit (Loss) from operations $ (75,026) $ (83,250) $ (8,614) $ (35,707) $ (2,380,651)
============ ============ ============== =============== =================
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Net loss per share-basic & diluted
$ (0.05) $ (0.09) $ (0.01) $ (0.04)
============ ========== ============= =============
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
Weighted average number of shares
outstanding
Basic & Diluted 1,444,702 978,993 1,472,326 978,993
========= ======= ========= =======
- ----------------------------------- -------------- -------------- ---------------- ---------------- -------------------
See accompanying notes to financial statements.
F2
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
Deficit
accumulated
Additional during Currency
Common Common paid in exploration translation
Date Stock Stock capital stage adjustment Total
--------- -------- ---------- ----------- -------- ---------
03-13-1992 556 $ 1 $ 1,999 $ $ $ 2,000
(1,800)
--------- -------- ---------- ----------- -------- ---------
12-31-1994 556 1 1,999 (1,800) 200
Issuance of stock for acquisition 2280 2 293,195 293,197
Additional capital contribution 27,000 27,000
Currency translation adjustment
Net loss (30,050) (30,050)
--------- -------- ---------- ----------- -------- ---------
12-31-1995 2,836 3 322,194 (31,850) 290,347
Issuance of shares for 670 1 147,375 147,376
forgiveness of loans
Issuance of shares for 198 1 43,055 43,056
acquisition
Currency translation adjustment
Net loss (845,629) (845,629)
--------- -------- ---------- ----------- -------- ---------
12-31-1996 3,704 5 512,624 (877,479) (364,850)
Issuance of shares for 19,048 19 99,981 100,000
acquisition
Issuance of shares for 12,476 12 65,488 65,500
consulting services
Sale of shares 2,857 2 14,998 15,000
Sale of shares 17,143 17 89,983 90,000
Issuance of shares for 2,381 2 62,498 62,500
acquisition
Issuance of shares to Advisory 286 1 1,499 1,500
Board
Sale of shares 5,000 5 524,995 525,000
Currency translation adjustment 8,621 8,621
Net loss (593,679) (593,679)
--------- -------- ---------- ----------- -------- ---------
12-31-1997 62,895 63 1,372,066 (1,471,158) 8,621 (90,408)
Issuance in consideration for 2,666 3 28,497 28,500
consulting fees
Issuance of shares for 67,906 68 100,932 101,000
conversion of debt
Sale of shares through private 40,317 40 155,960 156,000
placement
Sale of shares 22,667 23 33,977 34,000
Sale of shares through private 182,542 182 81,962 82,144
placement
Beneficial conversion feature on 41,248 41,248
loans
Foreign currency translation (940) (940)
Net loss (449,445) (449,445)
--------- -------- ---------- ----------- -------- ---------
12-31-1998 378,993 379 1,814,642 (1,920,603) 7,681 (97,901)
See accompanying notes to financial statements.
F3
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
Capital contribution 8,024 8,024
Sale of shares through private 506,667 507 113,493 114,000
placement
Issuance of shares for 53,333 53 23,947 24,000
conversion of debt
Issuance of shares for 40,000 40 29,960 30,000
consulting fees
Beneficial conversion feature on 7,994 7,994
loans
Currency translation adjustment (1,699) (1,699)
Net loss (219,015) (219,015)
--------- -------- ---------- ----------- -------- ---------
12-31-1999 978,993 979 1,998,060 (2,139,618) 5,982 (134,597)
Issuance of shares for
consulting fees 93,333 93 49,907 50,000
Net loss (166,007) (166,007)
--------- -------- ---------- ----------- -------- ---------
12-31-2000 1,072,326 1,072 2,047,967 (2,305,625) 5,982 (250,604)
Issuance of shares for
Consulting fees 200,000 200 49,800 50,000
Net loss for the six month
period ended 6-30-2001 (75,026) (75,026)
--------- -------- ---------- ----------- -------- ---------
Balance at 6-30-2001 1,272,326 $ 1,272 $2,097,767 $(2,380,651) $ 5,982 $(275,630)
========= ======== ========== =========== ======== =========
All shares issuance reflect a 17,500 forward split on January 24, 1995; a 30 to
1 reverse split on April 4, 1997 and a 7 to 1 reverse split on July 1, 1998 and
a 15 to 1 reverse split on January 10, 2001.
See accompanying notes to financial statements.
F4
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the period from
For the For the inception, March
period ended Period ended 23, 1992, to
June 30, June 30, June 30,
2001 2000 2001
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $(75,026) $(83,250) $(2,380,651)
Add items not affecting cash
Depreciation and amortization 720 6,844
Issuance of common stock for consulting fees 50,000 225,500
Issuance of common stock for the Lagoa da Pedra Project 293,197
Issuance of common stock for the acquisition of Arizona properties 100,000
Issuance of common stock for the acquisition of Minas Novas 105,556
Interest expense 64,877
Write off of security deposit
Write off of office equipment abandoned with shut down of office
Changes in non-cash operating accounts
Prepaid expenses 1,278 -
Accounts payable 2,992 (176) 22,931
---------- ---------- ------------
TOTAL CASH FLOWS FROM OPERATIONS (20,036) (83,426) (1,561,746)
CASH FLOWS FROM FINANCING ACTIVITIES
Officer loan payable 20,900 51,274 153,612
Contract payable 103,000
Proceeds from issuance of shares of common stock for debt 147,376
Proceeds of convertible note 109,365
Currency translation adjustment 5,982
Sale of stock-net of offering costs -- -- 1,053,168
---------- ---------- ------------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 20,900 51,274 1,572,503
CASH FLOWS FROM INVESTING ACTIVITIES
Marketable securities (29,878)
Office equipment -- (7,959)
---------- ---------- ------------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES -- (29,878) (7,959)
NET INCREASE (DECREASE) IN CASH 864 (2,274) 2,798
CASH BALANCE BEGINNING OF PERIOD 1,934 5,678 --
---------- ---------- ------------
CASH BALANCE END OF PERIOD $ 2,798 $ 3,404 $ 2,798
========== =========== ============
See accompanying notes to financial statements
F5
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 & 2000
(Unaudited)
Note 1 - Organization of Company and Issuance of Common Stock
a. Creation of the Company
Highland Holdings International, Inc. (the "Company") was formed on March
23, 1992 under the laws of the State of Delaware as Northern Medical, Inc. with
10,000,000 shares of common stock authorized, $.001 par value each and 1,000,000
shares of preferred stock, $.001 par value each. On October 30, 1992, the
certificate of incorporation was amended to change the name of the Company to
Normed Industries, Inc. The certificate of incorporation was again amended on
January 17, 1995 increasing the number of shares of common stock to 20,000,000,
$.001 par value each and 5,000,000 shares of preferred stock, $.001 par value
each. On March 28, 1995, the Company amended its certificate of incorporation to
change its name to Highland Resources, Inc. On November 3, 1997, the Company
amended its certificate of incorporation to change its name to Highland Holdings
International, Inc.
b. Description of the Company
Through June 30, 2001, the Company was an exploration stage company
involved in the acquiring and development of mining concessions aggregating
18,000 hectares in Honduras. It is the only active mining project that the
Company believes may be capable of yielding production quantities of gold. There
can be no assurance as to whether the Company's concessions contain a
commercially viable body of ore (reserves) until further mining geologic
exploration work is done, and a final feasibility study based upon such work is
concluded.
c. Issuance of Capital Stock
All shares issued reflect a 17,500 forward split on January 24, 1995; a 30
to 1 reverse split on April 4, 1997 and a 7 to 1 reverse split on July 1, 1998
and 15 to 1 reverse split on January 10, 2001 and such the per share amounts
have been adjusted to reflected the adjusted number of shares.
On March 31, 1992, the Company issued 556 shares of common stock to Mr.
Roger Fidler in consideration for the contribution of $1,500 in cash and $500 in
organization costs.
On March 13, 1995, the Company entered into an agreement to obtain the
alluvial gold and diamond mineral rights in its Lagoa da Pedra Project of the
Lagoa da Pedra Partnership for 2280 shares of common stock with an aggregate
consideration of $293,197.
On September 11, 1996, the Company issued 670 shares of common stock in
consideration for the forgiveness of $147,376 in loans to the Company.
On September 11, 1996, the Company issued 198 shares of common stock as
part consideration in the acquisition of Minas Novas valued at an aggregate
consideration of $43,056.
F6
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 & 2000
(Unaudited)
On May 5, 1997, the Company issued, pursuant to regulation D, an aggregate
of 19,048 shares of common stock to various parties in consideration for the
purchase of 18 unpatented mining claims situated in Pima County, Arizona, valued
at $100,000.
On May 5, 1997, the Company issued, pursuant to Regulation D, and aggregate
of 12,476 shares of common stock to various related parties to the Company in
consideration of consulting services valued at $65,500 in services.
On May 30, 1997, the Company sold 2,857 shares of common stock pursuant to
Rule 504 for an aggregate consideration of $15,000.
As of June 30, 1997, the Company sold 17,143 shares of common stock,
pursuant to a private placement under "Rule 504" of the Securities Act of 1933,
as amended, for an aggregate consideration of $90,000.
On December 16, 1997, the Company issued 2,381 shares of common stock for
an aggregate consideration of $62,500 pursuant to the agreement with Minas Novas
Pesquisa E. Lavra S.A. to three individuals named in the agreement as follows:
1,310 shares to Friedrich Ewald Ronger, 833 shares to Victor Eugenio Suckau and
238 shares to Lothar Wirth for an aggregate consideration of $62,500.
On December 16, 1997, the Company issued 286 shares of common stock to 6
advisory board members in exchange for services over a period of 1 year valued
at $1,500.
On December 16, 1997, the Company sold 5,000 shares pursuant to Regulation
D for an aggregate consideration of $525,000.
During the year 1998, the Company sold an aggregate of 22,667 shares of
common stock for an aggregate consideration of $34,000 in consulting fees.
During 1998, the Company issued 67,906 shares of common stock through the
initial sale of $101,000 in convertible debt that was converted into shares of
common stock during the year.
The Company sold an aggregate of 40,317 shares of common stock in
consideration for $156,000 through the completion of a private placement.
The Company sold an aggregate of 182,542 shares for an aggregate
consideration of $82,144 through the completion of a private placement.
As of September 30, 1999, the Company sold 20,000 shares of common stock
for $10,000 or to Mr. George Nadas, Secretary.
As of September 30, 1999, the Company sold an aggregate of 486,667 shares
of common stock for an aggregate of $104,000 to Mr. John Demoleas, President.
F7
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 & 2000
(Unaudited)
As of December 31, 1999, the Company converted the balance of $24,000 due
Cadence Capital into 53,333 shares of common stock in consideration for the
conversion of debt.
As of September 30, 1999, the Company issued an aggregate of 40,000 shares
of common stock in consideration of consulting fees valued at an aggregate of
$30,000.
In December 1999, the Company converted the balance due Cadence Capital
into 53,333 shares of common stock for $24,000 of debt or $0.03 per share.
On December 4, 2000, the Company issued 93,333 shares of common stock in
consideration of consulting fees valued at an aggregate of $50,000.
On January 10, 2001, the stockholders of the Company authorized a reverse
stock split of the Company's common stock in the ratio up to one share for
fifteen shares. The net loss per common share has been restated to retroactively
effect a reverse stock split in the ratio of one share for ten shares.
In the quarter ended March 31, 2001, the Company issued 200,000 shares of
common stock in consideration of consulting fees valued at an aggregate of
$50,000.
Note 2 - Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company had no current source
of revenue as at June 30, 2001. The Company incurred net losses of $2,380,651
for the period from inception at March 23, 1992 to June 30, 2001. This factor
raised, as at June 30, 2001, substantial doubt about the Company's ability to
continue as a going concern, but management believes, however, that E Street
Access, Inc., a privately-held New Jersey corporation in the financial services
business ("E Street") acquired by the Company on July 16, 2001, as described in
Note 5 below to these financial statements, will provide sufficient cash from
operations to enable the Company to continue as a going concern, even in the
absence of funding from offerings of the Company's securities. The Company will
require substantial additional funds to finance development of its mining
concessions and related real property on an ongoing basis and will have a
continuing long-term need to obtain additional financing. The Company's ability
to develop its mining concessions and related real property is dependent on its
success in raising capital and dedicating funds to such activities. Subsequent
to the six month period ended June 30, 2001, the Company acquired approximately
70% of the outstanding common stock of E Street. The Company may require
additional funds to finance (i) the operations of E Street on an ongoing basis
and (ii) E Street's planned growth and development. The ability to obtain these
funds may in part be dependent on its ability to achieve a profitable level
operations.
F8
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 & 2000
(Unaudited)
The financial statements presented consist of the consolidated balance
sheet of the Company as at June 30, 2001 and the related consolidated statements
of operations, stockholders equity and cash flows for the six-month periods
ending June 30, 2001 & 2000, and for the period from inception, March 23, 1992,
to June 30, 2001.
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
c. Investments
The Company's investments are classified as trading securities and are
carried at fair value with the realized and unrealized losses are carried in
operations.
d. Exploration Costs
Cost of acquisition, exploration, carrying, and retained unproven
properties are expensed as incurred. Cost incurred in proving and developing a
property ready for production are capitalized and amortized over the life of the
mineral deposit or over a shorter period if the property is shown to have
impairment in value.
e. Environmental Requirements
At the report date environmental requirements related to the mineral claims
acquired are unknown and therefore an estimate of any future cost cannot be
made.
f. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives using the straight-line
methods over a period of five years. Maintenance and repairs are charged against
operations and betterment's are capitalized.
g. Revenue Recognition
Revenue is recognized when extracted minerals are shipped.
h. Foreign Currency Translation
The U.S. dollar amounts presented have been translated from the Brazilian,
Honduras and Canada currency amounts in accordance with he criteria set forth in
Statement of Financial Accounting Standards 52 (SFAS 52) as applicable to the
accounts and transactions of a company operating in the currency of a country
with a non-highly inflationary economy. As of July 01, 1997, the three years
cumulative rate of inflation in Brazil, Honduras and Canada was less than 100%
and the entity's functional currency became the Brazilian real, Honduras lempira
and the
F9
HIGHLAND HOLDINGS INTERNATIONAL, INC.
(An exploration stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 & 2000
(Unaudited)
Canadian dollar, the currency of the primary economic environment in which the
Company operates. As the reporting currency is the U.S. dollar, the following
criteria for the translation of Brazilian reals, Honduras lempira and Canadian
dollars to U.S. dollars was applied to the local currency basis financial
statements according to SFAS 52. Assets and liabilities were translated by using
the exchange rate at the balance sheet date; Revenues, expenses, gains, losses
were translated by using the weighted average exchange rate for the period from
January 1, 2000 to December 31, 2000.
The translation loss for the period from January 1, 2000 to December 31,
2000 was reported separately as a component of shareholder's Equity (as a CTA
- -cumulative translation adjustment); the capital account in Shareholder's equity
was translated by using the historical exchange rate.
i. Selling and Marketing Costs
Selling and Marketing - Certain selling and marketing costs are expensed in
the period in which the cost pertains. Other selling and marketing costs are
expensed as incurred.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k. Asset Impairment
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS No. 121) effective January 1, 1996. SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the estimated undiscounted cash flows to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of.
l. Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net
loss per share for all periods presented has been restated to reflect the
adoption of SFAS No. 128. Basic net loss per share is based upon the weighted
average number of common shares outstanding. Diluted net loss per share is based
on the assumption that all dilutive convertible shares and stock options were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, options and
F10
warrants are assumed to be exercised at the beginning of the period (or at the
time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the period.
m. Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value method. The
company uses the intrinsic value method prescribed by APB25 and has opted for
the disclosure provisions of SFAs No.123. The implementation of this standard
did not have any impact on the Company's financial statements.
n. Fair value of financial instruments
Statement of financial accounting standard No. 107, Disclosures about fair
value of financial instruments, requires that the Company disclose estimated
fair values of financial instruments. The carrying amounts reported in the
statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimate of fair value.
o. Segment Reporting
The Company allocates resources and assesses the performance of its
activities as one segment. During the years ended December 31, 2000 and 1999,
the Company only operated in one segment therefore segment disclosure has not
been presented.
p. Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133, as amended by SFAS No. 137 and SFAS No. 138, is effective for fiscal
quarters of fiscal years beginning after June 15, 2000. The impact of adopting
this statement is not material to the financial statements of the Company.
F11
In June 2000, the FASB issued Financial Accounting Standards (SFAS) No.
138, "Accounting for Certain Instruments and Certain Hedging Activities." The
impact of adopting this statement is not material to the financial statements of
the Company.
In June 2000, the FASB issued Financial Accounting Standards (SFAS) No.
139, "Rescission of FASB Statement No. 53 and Amendments to Statements No. 63,
89, and 121." The impact of adopting this statement is not material to the
financial statements of the Company.
In September 2000, the FASB issued Financial Accounting Standards SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and a replacement of FASB Statement No. 125."
The impact of adopting this statement is not material to the financial
statements of the Company.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the SEC's views on the application of GAAP
to revenue recognition. In June 2000, the SEC released SAB No. 101B that delays
the implementation date of SAB 101 until no later than the fourth fiscal quarter
of fiscal year beginning after December 15, 1999. The Company has reviewed SAB
No. 101 and believes that it is in compliance with the SEC's interpretation of
Revenue recognition.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation." This Interpretation
clarifies (a) the definition of employee for purposes of applying APB Opinion
No. 25, (b) the criteria for determining whether a plan qualifies as a no
compensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. The
adoption of this Interpretation has not had a material impact on the Company's
financial position or operating results.
In January 2001, the Financial Accounting Standards Board Emerging Issues
Task Force issued EITF 00-27 effective for convertible debt instruments issued
after November 16, 2000. This pronouncement requires the use of the intrinsic
value method for recognition of the detachable and imbedded equity features
included with indebtedness, and requires amortization of the amount associated
with the convertibility feature over the life of the debt instrument rather than
the period for which the instrument first becomes convertible. The adoption of
this pronouncement has not had a material impact on the Company's financial
position or operating results.
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets.
F12
SFAS No. 141 establishes new standards for accounting and reporting
requirements for business combinations and will require that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. This statement
is effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. Intangible assets with
a determinable useful life will continue to be amortized over that period. This
statement becomes effective January 1, 2002.
Management is in the process of evaluating the requirements of SFAS No. 141
and 142, but does not expect these pronouncements will materially impact the
Company's financial position or results of operations.
q. Reclassifications
Certain amounts in the 2000 financial statements have been reclassified to
conform with the 2001 presentation.
Note 3 - Cash Flow Information
The following is the supplemental cash flow information for the period
ended June 30, 2001:
Issuance of 200,000 shares in consideration of consulting fees (50,000)
Capital Stock 50,000
------
Total -0-
======
The Company did not pay any cash for income tax or interest during the
periods ended June 30, 2001 and 2000.
Note 4 - Basis of Preparation
The accompanying unaudited condensed consolidated interim financial
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission for the presentation of interim financial
information, but do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. The
Company's audited consolidated financial statements for the two years ended
December 31, 2000, which were filed as part of the Company's Annual Report on
Form 10-KSB on April 5, 2001 with the Securities and Exchange Commission, are
hereby referenced. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three-month and six month
F13
periods ended June 30, 2001 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2001.
Note 5 - Subsequent Event
Effective July 16, 2001, the Company acquired approximately 70% of the
outstanding common stock of E Street Access, Inc., a privately-held New Jersey
corporation ("E Street"), pursuant to a Plan and Agreement of Reorganization,
dated June 29, 2001, among the Company, E Street and holders of approximately
70% of E Street's outstanding common stock (the "Exchanging Shareholders"), as
amended on July 16, 2001 (the "Agreement"). Pursuant to the Agreement, the
Company agreed to exchange its equity securities for all outstanding common
stock and warrants of E Street (the "Exchange"), and on July 16, 2001, issued
2,646,533 shares of its Series A Voting Convertible Preferred Stock (the
"Preferred Stock") (convertible into 13,232,655 shares of common stock) and
5,800,669 shares of its common stock, in exchange for an aggregate of 19,033,334
shares of E Street common stock of the Exchanging Shareholders, with the result
that E Street became a majority-owned subsidiary of the Company. Pursuant to the
Exchange and the Agreement, the Company agreed to issue one share of its common
stock in exchange for each remaining share of E Street common stock outstanding
tendered by the holders thereof. In addition, outstanding warrants to acquire
43,371 shares of E Street common stock, at an exercise price of $ 1.00 per
share, will be convertible into warrants to purchase the same number of shares
of the Company's common stock at the option of the holders. If all remaining
shares of E Street common stock are exchanged for shares of common stock of the
Company, an additional 8,286,750 shares of the Company's common stock will be
issued in the Exchange, and the total number of such shares then outstanding,
excluding shares that would be issuable upon exercise of the warrants, would be
28,594,210, and former E Street shareholders would own approximately 95% of the
Company's outstanding common stock.
F14
Item 2. Management's Discussion and Analysis or Plan of Operation.
Except for historical information, the materials contained in this Management's
Discussion and Analysis for Highland Holdings International, Inc. (the
"Company") are forward-looking (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)
and involve a number of risks and uncertainties. These include the Company's
historical losses, the need to manage its growth, general economic downturns,
intense competition in the mining and natural resource industries, seasonality
of quarterly results, and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission (the "SEC").
Although forward-looking statements in this Quarterly Report reflect the good
faith judgment of management, such statements can only be based on facts and
factors currently known by the Company. Consequently, forward-looking statements
are inherently subject to risks and uncertainties, actual results and outcomes
may differ materially from the results and outcomes discussed in the
forward-looking statements. Readers are urged to carefully review and consider
the various disclosures by the Company in this Quarterly Report, as an attempt
to advise interested parties of the risks and factors that may affect the
Company's business, financial condition, and results of operations and
prospects.
Exploration Stage Activities.
The Company has been an exploration stage enterprise from its inception
March 23, 1992, to June 30, 2001. The Company is an exploration stage company
involved in the exploration of mining concessions aggregating 18,000 hectares in
Honduras which began in October, 1997. There can be no assurance that production
will develop.
Development of Other Business.
The Board of Directors, in the third quarter of the fiscal year 2000, decided to
begin looking at other business opportunities and engaged two consultants who
agreed to make recommendations regarding the acquisition of or merger with
business entities having cash flow. As payment in full for these services, the
Company issued 93,333 shares of common stock pursuant to a stock bonus plan.
This stock was registered with the SEC by means of a Registration Statement on
Form S-8, which was filed with the SEC in November 2000. During the period ended
March 31, 2001, the Company entered into non-binding letters of intent with
business entities engaged in the financial services business sector that had
been recommended to the Company. In May 2001 each of these letters of intent was
terminated without cost to the Company. Notice was made to the public at
2
the time of cancellation. A letter of intent was signed with E Street on May 16,
2001 which concluded in the Company's acquisition of approximately 70% of the
issued and outstanding shares of E Street on July 16, 2001 (see Subsequent
Events" herein). During the period ended March 31, 2001, four non-affiliated
consultants rendered services with respect to future business growth of the
Company. As payment in full for these services, the Company issued 200,000
shares of common stock pursuant to a stock bonus plan. This stock was registered
with the SEC by means of a Registration Statement on Form S-8, which was filed
with the SEC in January 2001.
RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2001 AS COMPARED TO THE
PERIOD ENDED JUNE 30, 2000.
Revenues
For the six-month periods ended June 30, 2001 and June 30, 2000, the Company did
not generate any revenue from the production and sale of minerals or any other
source.
General and Administrative Expenses
General and administrative expenses increased to $9,406 during the six months
ended June 30, 2001 from $2,407 for the same period in 2000, an increase of
$6,999. This increase represents the use of a contract force to handle the
development of the property eliminating the costs incurred the previous year for
salaries.
Exploration Costs
Exploration costs decreased to $14,900 during the six months ended June 30, 2001
from $48,506 for the same period in 2000, a decrease of $33,606. This decrease
represents a similar reduction in expenditures attributable to mining operations
by the Company.
Other Income and Expense
Non-cash compensation for consulting fees during the six months ended June 30,
2001 totaled $50,000 as compared to $-0- for the same period in the prior year.
This increase is attributable to the activities of the Company in researching
the viability of other, non-mining related, business ventures.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements have been prepared on a going concern
basis which assumes that the Company will continue in operation for at least one
year and will be able to realize its assets and discharge its liabilities in the
normal course of business. The Company incurred net losses from inception to
June 30, 2001 of $2,380,651. The Company did not generate positive cash flow
from operations in the first of six months of 2001. These facts indicate that
the Company's continuation as a going concern is dependent upon, among other
things, its ability to obtain adequate financing. At June 30, 2001, assets
totaled $3,913 while liabilities totaled $279,543, including a loan from an
officer in the amount of $153,612 and contractual obligations, the validity of
which is disputed by the Company.
For the six month period ended June 30, 2001, the Company received $20,900 of
the $153,612 officer loan.
3
The Company expects its capital requirements to increase over the next several
years as it continues to develop its business, including that of E Street
increases sales and administration infrastructure and embarks on developing
in-house business capabilities and facilities. The Company's future liquidity
and capital funding requirements will depend on numerous factors, including the
extent to which the Company's present management can fund or raise funds to meet
capital requirements, the costs and timing of mineral exploration, property
development, facilities expansion needs, operating revenues of E Street and
competition in the businesses entered into.
The Company will continue to seek working capital from private offerings of its
securities. There can be no assurance that the Company will be able to raise
funds from such offerings on satisfactory terms, if at all. If the Company is
unable to secure funds from private or public offerings, this could materially
jeopardize the Company's ability to continue as a going concern or to maintain
ownership of its present mineral concessions. Management believes, however, that
the Company's acquisition of the financial services company, E Street, as
outlined in this Report and in note 5 to the accompanying financial statements,
will provide sufficient cash from operations to enable the Company to continue
as a going concern, even in the absence of funding from private or public
offerings.
Through June 30, 2001, the Company was an exploration stage company involved in
the exploration and development of an 18,000 hectare gold mining concession in
Honduras that it acquired in October 1997. The Independent Auditor's Report and
the Financial Statements for the two years ended December 31, 2000, which were
included in the Company's Annual Report on Form 10-KSB filed with the SEC on
April 5, 2001 are referenced in the Financial Statements for the quarter ended
June 30, 2001 included in this Report.
Subsequent Events.
On July 16, 2001, the Company acquired approximately 70% of the outstanding
common stock of E Street pursuant to a Plan and Agreement of Reorganization
dated June 29, 2001 as amended on July 16, 2001 (the "Agreement"), and an offer
by the Company to exchange its equity securities for all outstanding common
stock and warrants of E Street undertaken pursuant to the Agreement (the
"Exchange").
Pursuant to the Agreement and the Exchange, on July 16, 2001, the Company issued
2,646,533 shares of its Series A Voting Convertible Preferred Stock (the
"Preferred Stock") convertible into 13,232,65 shares of common stock and
5,800,669 shares of its common stock, in exchange for an aggregate of 19,033,334
shares of E Street common stock, with the result that E Street has become a
majority-owned subsidiary of the Issuer. The Company had intended to issue one
share of its common stock for each share of common stock of E Street tendered in
the Exchange, but since the Company did not have the required number of
authorized shares of common stock to complete the Exchange on this basis, it
agreed to issue one share of Preferred Stock for every five shares of E Street
common stock tendered by certain E Street shareholders in the Exchange. Upon
approval by the Company's shareholders of an increase in the number of shares of
common stock which the Company is authorized to issue, the Preferred Stock will
be automatically converted into shares of the Company's common stock. If, at
July 16, 2001, the Preferred Stock were converted into common stock, an
aggregate of 20,305,660 shares of common stock of the Company would have been
outstanding.
4
Outstanding Warrants to acquire 43,371 shares of E Street common stock at an
exercise price of $1.00 per share will be convertible into warrants to purchase
the same number of shares of the Company's common stock on the same terms and
conditions pursuant to the Exchange.
The exchange of one share of common stock of the Company for each share of
common stock of E Street will continue on a rolling basis to E Street's
remaining shareholders. If all remaining shares of E Street common stock are
exchanged for shares of the Company, an additional 8,286,750 shares of the
Company's common stock will be issued in the Exchange, and the total number of
such shares then outstanding will be 29,594,210, excluding shares that would be
issuable upon exercise of the Warrants, and former E Street shareholders would
own approximately 95% of the Company's outstanding common stock.
The E Street shareholders who participated in the Exchange on July 16, 2001
included the officers and directors of E Street, John Derrico, Warren B. Minton
and Joseph Schultz, who became beneficial owners of approximately 22%, 25% and
25% respectively of the Company's outstanding common stock.
As part of the Agreement, the Company agreed to nominate Messrs. Derrico, Minton
and Schultz to serve as members of its Board of Directors and, together with E
Street, entered into employment agreements with each of Messrs. Derrico, Schultz
and Minton for terms of three years commencing July 16, 2001. Under these
agreements, Mr. Derrico is serving as President and Chief Executive Officer of
the Company and E Street; Mr. Minton as the Company's Executive Vice President
and Chief Operating Officer and Co-Chairman and as Chief Operating Officer of
E Street; and Mr. Schtulz as Managing Director of the Company and Managing
Director and Co-Chairman of E Street.
Description of E Street's business
E Street, whose offices are located in Englishtown, New Jersey, is a
multifaceted securities and financial solutions company that develops and
licenses software for the financial services industry and systems and hardware
architecture for use in both Internet and traditional securities services and
operations, including NASDAQ market making and investment banking. E Street's
subsidiaries are: ESA Securities, Inc., a registered broker-dealer and NASD
member firm; Global Tradesoft Inc. which is developing proprietary software and
systems architecture for regulatory reporting; and E Street Venture Partners,
Inc., which was organized to conduct merchant banking activities.
5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As of June 30, 2001 the Company is not engaged in any legal proceedings.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the security holders of the Company during
its fiscal quarter ended June 30, 2001.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
1. The Company filed a Current Report on Form 8-K on July 31, 2001,
reflecting the change in control and operations.
2. The Company filed a Current Report on Form 8-K/A on April 9, 2001,
which included a letter of the former independent accountants
concurring with the disclosures set forth in the Form 8-K filed on
March 19, 2001.
6
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HIGHLAND HOLDINGS INTERNATIONAL, INC.
Date: August 17, 2001 by: /s/ John Derrico
----------------------
John Derrico
President and
Chief Executive Officer
Date: August 17, 2001 by: /s/ John P. Demoleas
--------------------
John P. Demoleas
Director and Secretary
Date: August 17, 2001 by: /s/ George Nadas
----------------
George Nadas
Director and Principal
Accounting and Chief Financial Officer
7