First upgrade needs a diamond. You will come across a few in Chap 2. Keep one, sell the rest.
Second and final upgrade needs a beljuril, which can be found in the Umar Hills. I also found a beljuril, iirc, as part of the loot after defeating Firkraag.
To get the horn upgrade, you need to see Maheer in Waukeen's Promenade, not Cromwell. Find Waukeen (he's on a platform somewhere to the west of the entrance to Adventurer's Mart. There is a dialogue option of asking him what he can do. Choose that and if you have the horn and the necessary gem in your possesion he'll offer to upgrade it for you.
------------------
"Butt-kicking for goodness!" - Minsc
"Cities always teem with evil and decay. Let's give it a good shake and SEE WHAT FALLS OUT!!" - Minsc
